Exhibit 99.1
ITEM 6. SELECTED FINANCIAL DATA
As more fully described in the accompanying Current Report on Form 8-K and the
Notes to the Consolidated Financial Statements in Item 15(a) herein, this
Exhibit 99.1 updates Items 6, 7, 7A, 8 and 15(a) of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 2005 to reflect the
retrospective application of EITF 04-5 and the reclassification of certain
properties as discontinued operations.
The following table sets forth, on a historical basis, our selected financial
data. This information should be read in conjunction with our audited
consolidated financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations appearing elsewhere in this Form
10-K.
Retrospectively Adjusted
Years ended December 31,
2005 2004 2003 2002 2001
---- ---- ----- ---- ----
OPERATING DATA:
Revenues $ 100,806 $ 87,082 $ 82,791 $ 57,803 $ 49,030
Operating expenses 41,642 36,135 34,530 26,403 24,749
Interest expense 18,804 16,687 15,573 8,679 9,037
Depreciation and amortization 25,905 22,781 23,672 12,441 11,232
Abandoned project costs -- -- -- 274 --
Gain in sale of land -- 932 1,187 1,530 --
Equity in earnings of unconsolidated partnerships 21,280 513 985 542 518
Minority interest (13,952) (1,466) (4,899) (1,686) (840)
Income taxes (2,140) -- -- -- --
--------- --------- --------- --------- ---------
Income from continuing operations 19,643 11,458 6,289 10,392 3,690
Income from discontinued operations 983 8,127 1,564 9,007 6,261
--------- --------- --------- --------- ---------
Income before cumulative effect of
a change in accounting principle 20,626 19,585 7,853 19,399 9,951
Cumulative effect of a change in
accounting principle -- -- -- -- (149)
--------- --------- --------- --------- ---------
Net income $ 20,626 $ 19,585 $ 7,853 $ 19,399 $ 9,802
========= ========= ========= ========= =========
Basic earnings per share:
Income from continuing operations $ 0.62 $ 0.39 $ 0.24 $ 0.41 $ 0.14
Income from discontinued operations 0.03 0.28 0.06 0.36 0.22
Cumulative effect of a change in
accounting principle -- -- -- -- (0.01)
--------- --------- --------- --------- ---------
Basic earnings per share $ 0.65 $ 0.67 $ 0.30 $ 0.77 $ 0.35
========= ========= ========= ========= =========
Diluted earnings per share:
Income from continuing operations $ 0.61 $ 0.38 $ 0.23 $ 0.41 $ 0.14
Income from discontinued operations 0.03 0.27 0.06 0.35 0.22
Cumulative effect of a change in accounting
principle -- -- -- -- (0.01
--------- --------- --------- --------- ---------
Diluted earnings per share $ 0.64 $ 0.65 $ 0.29 $ 0.76 $ 0.35
========= ========= ========= ========= =========
Weighted average number of Common
Shares outstanding
- basic 31,949 29,341 26,640 25,321 28,313
- diluted (1) 32,214 29,912 27,232 25,806 --
Cash dividends declared per Common Share $ 0.7025 $ 0.6525 $ 0.595 $ 0.52 $ 0.48
BALANCE SHEET DATA:
Real estate before accumulated
depreciation $ 709,906 $ 599,558 $ 541,892 $ 375,149 $ 331,397
Total assets 841,591 636,731 556,278 422,034 494,015
Total mortgage indebtedness 386,600 271,571 277,817 173,074 161,609
Minority interest in Operating Partnership 9,204 6,893 7,875 22,745 37,387
Minority interests in partially-owned affiliates 137,086 75,244 37,681 12,611 1,355
Total equity 220,576 216,924 169,734 161,323 179,098
OTHER:
Funds from Operations (2) $ 35,842 $ 30,004 $ 27,664 $ 30,162 $ 13,487
Cash flows provided by (used in):
Operating activities 50,239 33,885 31,031 29,422 31,204
Investing activities (135,470) (72,860) (76,552) 31,855 20,925
Financing activities 159,425 40,050 15,454 (50,215) (40,085)
1
Notes:
(1) For 2001, the weighted average number of shares outstanding on a diluted
basis is not presented as the inclusion of additional shares was
anti-dilutive.
(2) The Company considers funds from operations ("FFO") as defined by the
National Association of Real Estate Investment Trusts ("NAREIT") to be an
appropriate supplemental disclosure of operating performance for an equity
REIT due to its widespread acceptance and use within the REIT and analyst
communities. FFO is presented to assist investors in analyzing the
performance of the Company. It is helpful as it excludes various items
included in net income that are not indicative of the operating performance,
such as gains (losses) from sales of depreciated property and depreciation
and amortization. However, the Company's method of calculating FFO may be
different from methods used by other REITs and, accordingly, may not be
comparable to such other REIT's. FFO does not represent cash generated from
operations as defined by generally accepted accounting principles ("GAAP")
and is not indicative of cash available to fund all cash needs, including
distributions. It should not be considered as an alternative to net income
for the purpose of evaluating the Company's performance or to cash flows as
a measure of liquidity. Consistent with the NAREIT definition, the Company
defines FFO as net income (computed in accordance with GAAP), excluding
gains (losses) from sales of depreciated property, plus depreciation and
amortization, and after adjustments for unconsolidated partnerships and
joint ventures. See Management's Discussion and Analysis of Financial
Condition and Results of Operations - Funds from Operations for the
reconciliation of net income to FFO.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with our consolidated
financial statements (including the related notes thereto) appearing elsewhere
in this Form 10-K. Certain statements contained in this Annual Report on Form
10-K may contain forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of
1934 and as such may involve known and unknown risks, uncertainties and other
factors which may cause our actual results, performance or achievements to be
materially different from future results, performance or achievements expressed
or implied by such forward-looking statements. Forward-looking statements, which
are based on certain assumptions and describe our future plans, strategies and
expectations are generally identifiable by use of the words "may," "will,"
"should," "expect," "anticipate," "estimate," "believe," "intend" or "project"
or the negative thereof or other variations thereon or comparable terminology.
Factors which could have a material adverse effect on our operations and future
prospects include, but are not limited to those set forth under the heading
"Risk Factors" in this Annual Report on Form 10-K. These risks and uncertainties
should be considered in evaluating any forward-looking statements contained or
incorporated by reference herein.
OVERVIEW
We currently operate 73 properties, which we own or have an ownership interest
in, consisting of 71 neighborhood and community shopping centers and two
multi-family properties, which are located primarily in the Northeast,
Mid-Atlantic and Midwestern regions of the United States. We receive income
primarily from the rental revenue from our properties, including recoveries from
tenants, offset by operating and overhead expenses.
We focus on three primary areas in executing our business plan as follows:
- Focus on maximizing the return on our existing portfolio through
leasing and property redevelopment activities. Our redevelopment
program is a significant and ongoing component of managing our
existing portfolio and focuses on selecting well-located neighborhood
and community shopping centers and creating significant value through
re-tenanting and property redevelopment.
- Pursue above-average returns through a disciplined and opportunistic
acquisition program. The primary conduits for our acquisition program
are through our existing acquisition joint venture, Acadia Strategic
Opportunity Fund II, LLC ("Fund II"), as well as the Retailer
Controlled Property Venture ("RCP Venture") established to invest in
surplus or underutilized properties owned or controlled by retailers
and the New York Urban Infill Redevelopment initiative which focuses
on investing in redevelopment projects in urban, dense areas where
retail tenant demand has effectively surpassed the supply of available
sites.
- Maintain a strong balance sheet, which provides us with the financial
flexibility to fund both property redevelopment and acquisition
opportunities.
RESULTS OF OPERATION
Comparison of the year ended December 31, 2005 ("2005") to the year ended
December 31, 2004 ("2004")
Change
Revenues: 2005 2004 $ %
----------------- ---------------- ------------ -------------
Minimum $ 75.4 $ 68.9 $ 6.5 9%
rents
Percentage rents 1.3 1.3 -- --
Expense reimbursements 14.9 13.3 1.6 12%
Other property income 2.3 0.8 1.5 188%
Management fee income 3.6 1.3 2.3 177%
Interest income 3.3 1.3 2.0 154%
Other - 0.2 (0.2) (100)%
-------------- ------------- --------- -------------
Total revenues $ 100.8 $ 87.1 $ 13.7 16%
============== ============= ========= =============
2
Minimum rents within our Funds I and II ("Funds") increased $4.6 million
primarily a result of minimum rents from properties we acquired through the
Funds during 2004 and 2005 ("2004/2005 Fund Acquisitions") as discussed in
"LIQUIDITY AND CAPITAL RESOURCES" in Item 7 of this Form 10K. $1.9 million of
the increase in minimum rents was attributable to additional rents following our
purchase of Amboy Road shopping center in July 2005, re-tenanting activities as
well as increased occupancy across the remaining balance of our portfolio.
Tenant expense reimbursements within our Funds increased $0.9 million primarily
a result of our 2004/2005 Fund Acquisitions. Real estate tax reimbursements
within the balance of the portfolio increased $0.5 million primarily as a result
of general increases in real estate taxes as well as re-tenanting activities.
CAM expense reimbursements within the balance of our portfolio increased $0.5
million as a result of increased tenant reimbursements of higher snow removal
costs in 2005.
Management fee income increased primarily as a result of management fees earned
related to our acquisition of certain management contract rights in January 2004
and February 2005.
The increase in interest income was a combination of additional interest income
earned on our notes receivable originated in 2004 and 2005 and additional
interest income earned following our preferred equity investment in Levitz in
2005.
Change
------------------------
Operating Expenses: 2005 2004 $ %
--------------- ------------- ------------- ----------
Property operating $ 16.1 $ 17.0 $ (0.9) (5)%
Real estate taxes 9.4 8.2 1.2 15%
General and administrative 16.1 10.9 5.2 48%
Depreciation and amortization 25.9 22.8 3.1 14%
----------- ---------- ---------- ----------
Total operating expenses $ 67.5 $ 58.9 $ 8.6 15%
=========== ========== ========== ==========
Property operating expenses within our Funds decreased $0.6 million primarily as
a result of the reduction in the allowance for doubtful accounts as a result of
the recovery of amounts due from Penn Traffic following its bankruptcy and the
partial recovery of previous years CAM billings previously disputed by tenants.
The decrease in property operating expenses within our remaining portfolio was
primarily a result of our recovery of $0.5 million in 2005 related to the
settlement of our insurance claim in connection with the flood damage incurred
at Mark Plaza. A non-recurring charge of approximately $0.7 million related to
this flood damage was recorded in 2004. This decrease was partially offset by
higher snow removal costs in 2005.
Real estate taxes increased $0.8 million within our Funds primarily as a result
of our 2004/2005 Fund Acquisitions. General increases in real estate taxes due
to increases in assessments and tax rates were also experienced across our
remaining portfolio.
The increase in general and administrative expense was attributable to increased
compensation expense and other overhead expenses following the expansion of our
infrastructure related to increased investment activity in fund assets and asset
management services.
The $1.9 million increase in depreciation and amortization expense in 2005
within our Funds was primarily attributable to our 2004/2005 Fund Acquisitions.
Within the balance of our portfolio, depreciation expense increased $0.3 million
primarily related to capitalized tenant installation costs in 2004 and 2005.
Amortization expense increased primarily as a result of the write-off of
acquisition costs totaling $0.5 million allocable to specific Klaff management
contracts following the disposition of the related assets.
Change
------------------------
Other: 2005 2004 $ %
------------- ----------- ----------- ------------
Equity in earnings of unconsolidated partnerships $ 21.3 $ 0.5 $ 20.8 4160%
Interest Expense (18.8) (16.7) (2.1) (13)%
Gain on Sale - 0.9 (0.9) (100)%
Minority Interest (14.0) (1.4) (12.6) (900)%
Income Taxes (2.1) - (2.1) --
Income from discontinued operations 1.0 8.1 (7.1) (88)%
Equity in earnings of unconsolidated partnerships increased primarily as a
result of our share of gain from the sale of certain Mervyn's locations.
The increase in interest expense was primarily attributable to our Fund
Acquisitions and higher average interest rates on the portfolio mortgage debt in
2005.
The gain on sale of land in 2004 was related to a prior year sale of a contract
to purchase land to the Target Corporation. We received additional sales
proceeds of $0.9 million which were being held in escrow pending the completion
of certain site work by the buyer. Of these proceeds, $0.5 million were
distributed to our joint venture partner in the sale and are a component of
minority interest in the accompanying financial statements.
3
Income taxes in 2005 relate to our share of the income taxes on gain from the
sale of certain Mervyn's locations during the third and fourth quarters of 2005.
Income (loss) from discontinued operations represents activity related to
properties sold during 2004 and 2005 as well as property held for sale
subsequent to 2005.
Comparison of the year ended December 31, 2004 ("2004") to the year ended
December 31, 2003 ("2003")
Change
Revenues: 2004 2003 $ %
----------------- ---------------- ------------ -------------
Minimum $ 68.9 $ 64.4 $ 4.5 7%
rents
Percentage rents 1.3 1.1 0.2 18%
Expense reimbursements 13.3 14.1 (0.8) (6%)
Other property income 0.8 0.9 (0.1) (11%)
Management fee Income 1.3 0.3 1.0 333%
Interest income 1.3 0.8 0.5 63%
Other 0.2 1.2 (1.0) (83%)
-------------- ------------- --------- -------------
Total revenues $ 87.1 $ 82.8 $ 4.3 5%
============== ============= ========= =============
Minimum rents within our Funds increased $2.0 million primarily from properties
we acquired through the Funds during 2003 and 2004 ("2003/2004 Fund
Acquisitions") as discussed in "LIQUIDITY AND CAPITAL RESOURCES" in Item 7 of
this Form 10K. $2.4 million of the increase in minimum rents was attributable to
an increase in rents following our redevelopment of the Gateway shopping center
in 2003 and an increase in rents from re-tenanting activities as well as
increased occupancy across the balance of our portfolio.
Expense reimbursement from tenants within Fund I decreased $0.6 million
primarily as a result of a decrease in reimbursable expenses at the Brandywine
Portfolio. Real estate tax reimbursements increased $0.1 million within the
balance of our portfolio primarily as a result of general increases in real
estate taxes as well as re-tenanting activities. CAM expense reimbursements
decreased $0.3 million within the balance of our portfolio primarily from a
decrease in tenant reimbursable snow removal costs in 2004 offset by increased
overall tenant reimbursements as a result of increased occupancy within the
portfolio.
Management fee income increased as a result of asset management fees earned
related to our acquisition of certain management contract rights in 2004.
Other income decreased primarily due to a lump sum additional rent payment of
$1.2 million received from a former tenant during 2003 in connection with the
re-anchoring of Branch Plaza.
Change
------------------------
Operating Expenses: 2004 2003 $ %
--------------- ------------- ------------- ----------
Property operating $ 17.0 $ 16.1 $ 0.9 6%
Real estate taxes 8.2 7.6 0.6 8%
General and administrative 10.9 10.8 0.1 1%
Depreciation and amortization 22.8 23.7 (0.9) (4%)
----------- ---------- ---------- ----------
Total operating expenses $ 58.9 $ 58.2 $ 0.7 1%
=========== ========== ========== ==========
Property operating expenses increased $0.8 million within our Funds primarily
due to our 2003/2004 Fund Acquisitions. Property operating expenses increased
$0.1 million through our remaining portfolio primarily due to the result of a
non-recurring charge of approximately $0.7 million related to flood damage at
the Mark Plaza in 2004 offset by higher snow removal costs during 2003.
Real estate taxes increased $0.5 million within our Funds primarily due to our
2003/2004 Fund Acquisitions. The remaining increase was primarily due to a real
estate tax refund received in 2003 related to the appeal of taxes paid in prior
years at our Greenridge Plaza and higher real estate taxes throughout the
balance of our portfolio in 2004.
General and administrative expense increased primarily as the result of
additional professional fees related to Sarbanes-Oxley compliance in 2004
partially offset by certain employee termination costs in 2003 and our
capitalization of certain internal leasing costs in 2004.
Depreciation and amortization expenses increased $0.9 million within our Funds
primarily due to our 2003/2004 Fund Acquisitions. Within our remaining
portfolio, depreciation expense decreased $2.6 million. This was a result of the
write-off of $2.7 million of unamortized tenant improvement costs related to the
buyout and termination of the former anchor at the Town Line Plaza redevelopment
project in 2003. This decrease was offset by increased depreciation expense in
2004 following the Gateway redevelopment project being placed in service during
the second quarter of 2003. Amortization expense increased $0.8 million
primarily as a result of the amortization of our investment in management
contracts in 2004.
4
Change
------------------------
Other 2004 2003 $ %
------------- ----------- ----------- ------------
Equity in earnings of unconsolidated partnerships $ 0.5 $ 1.0 $ (0.5) (50%)
Interest expense (16.7) (15.6) (1.1) 7%
Gain on sale 0.9 1.2 (0.3) (25%)
Minority interest (1.4) (4.9) 3.5 71%
Operating income from discontinued operations 1.6 1.5 0.1 7%
Discontinued operations - gain on sale of properties 6.7 0.0 6.7 100%
Interest expense increased $0.3 within our Funds primarily due to additional
borrowings associated with 2003/2004 acquisitions. The balance of the increase
was primarily attributable to an increase of $1.3 million as a result of higher
average interest rates on the portfolio debt for 2004 and a decrease of $0.1
million in capitalized interest in 2004. These were offset by a decrease of $0.5
million as a result of lower outstanding borrowings in 2004.
Discontinued operations - gain on sale of properties increased $6.7 million due
to a property sale in 2004.
Funds from Operations
We consider funds from operations ("FFO") as defined by the National Association
of Real Estate Investment Trusts ("NAREIT") to be an appropriate supplemental
disclosure of operating performance for an equity REIT due to its widespread
acceptance and use within the REIT and analyst communities. FFO is presented to
assist investors in analyzing our performance. It is helpful as it excludes
various items included in net income that are not indicative of the operating
performance, such as gains (losses) from sales of depreciated property and
depreciation and amortization. However, our method of calculating FFO may be
different from methods used by other REIT's and, accordingly, may not be
comparable to such other REIT's. FFO does not represent cash generated from
operations as defined by generally accepted accounting principles ("GAAP") and
is not indicative of cash available to fund all cash needs, including
distributions. It should not be considered as an alternative to net income for
the purpose of evaluating our performance or to cash flows as a measure of
liquidity.
Consistent with the NAREIT definition, we define FFO as net income (computed in
accordance with GAAP), excluding gains (losses) from sales of depreciated
property, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. The reconciliations of net
income to FFO for the years ended December 31, 2005, 2004, 2003, 2002 and 2001
are as follows:
Reconciliation of Net Income to Funds from Operations
Restated
For the Years Ended December 31,
2005 2004 2003 2002 2001
---- ---- ---- ---- ----
Net income $ 20,626 $ 19,585 $ 7,853 $ 19,399 $ 9,802
Depreciation of real estate and amortization of leasing costs:
Consolidated affiliates, net of minority interests' 16,676 16,026 18,421 15,335 18,422
share
Unconsolidated affiliates 746 714 643 632 627
Income attributable to minority interest in operating
partnership (1) 416 375 747 2,928 2,221
(Gain) loss on sale of properties (2,622) (6,696) -- (8,132) (17,734)
Cumulative effect of change in accounting principle -- -- -- -- 149
------------ ---------- ------------ ------------ -----------
Funds from operations $ 35,842 $ 30,004 $ 27,664 $ 30,162 $ 13,487
============ ========== ============ ============ ===========
Notes:
(1) Represents income attributable to Common Operating Partnership Units and
does not include distributions paid to Series A and B Preferred OP
Unitholders.
5
LIQUIDITY AND CAPITAL RESOURCES
USES OF LIQUIDITY
Our principal uses of liquidity are expected to be for distributions to our
shareholders and OP unit holders, debt service and loan repayments, and property
investment which include the funding of our joint venture commitments,
acquisition, redevelopment, expansion and re-tenanting activities.
Distributions
In order to qualify as a REIT for Federal income tax purposes, we must currently
distribute at least 90% of our taxable income to our shareholders. For the first
three quarters during 2005, we paid a quarterly dividend of $0.1725 per Common
Share and Common OP Unit. In November of 2005, our Board of Trustees approved
and declared a 7.2% increase in our quarterly dividend to $0.1850 per Common
Share and Common OP Unit for the fourth quarter of 2005 which was paid January
13, 2006.
Acadia Strategic Opportunity Fund, LP ("Fund I")
In September 2001, we committed $20.0 million to a newly formed joint venture
with four of our institutional shareholders, who committed $70.0 million, for
the purpose of acquiring a total of approximately $300.0 million of community
and neighborhood shopping centers on a leveraged basis. As of December 31, 2005,
we have contributed $19.2 million to Fund I.
We are the manager and general partner of Fund I with a 22% interest. In
addition to a pro-rata return on our invested equity, we are entitled to a
profit participation based upon certain investment return thresholds. Cash flow
is to be distributed pro-rata to the partners (including us) until they have
received a 9% cumulative return on, and a return of all capital contributions.
Thereafter, remaining cash flow is to be distributed 80% to the partners
(including us) and 20% to us. We also earn a fee for asset management services
equal to 1.5% of the allocated equity in the remaining Fund I assets, as well as
market-rate fees for property management, leasing and construction services.
As of December 31, 2005, Fund I has purchased a total of 35 properties totaling
2.8 million square feet as further discussed in "PROPERTY ACQUISITIONS" in Item
1 of this Form 10-K.
Acadia Strategic Opportunity Fund II, LLC ("Fund II")
On June 15, 2004, we closed our second acquisition fund, Fund II, which includes
all of the investors from Fund I as well as two additional institutional
investors. With $300 million of committed discretionary capital, Fund II expects
to be able to acquire up to $900 million of real estate assets on a leveraged
basis. We are the managing member with a 20% interest in the joint venture. The
terms and structure of Fund II are substantially the same as Fund I with the
exceptions that the preferred return is 8% and the asset management fee is
calculated on committed equity of $250 million through June 15, 2005 and then on
the total committed equity of $300 million thereafter. As of December 31, 2005,
we have contributed $67.0 million to Fund II.
Fund II has invested in the RCP Venture and the New York Urban/Infill
Redevelopment initiatives and other investments as further discussed in
"PROPERTY ACQUISITIONS" in Item 1 of this Form 10-K .
Other Investments
During 2004 and 2005, we made the following other investments as further
discussed in "PROPERTY ACQUISITIONS" in Item 1 of this Form 10-K:
i) $20.0 million in Levitz SL,
ii) $16.8 million in Amboy Road,
iii) $8.0 million for Klaff's management rights,
iv) $3.2 million for Boonton and
v) $9.8 million for Clark/Diversey.
Property Development, Redevelopment and Expansion
During 2005, we completed the development of the Bartow Avenue Center, located
in Bronx, New York. A new anchor, Sleepy's, opened for business during the
second quarter. This store occupies 6,430 square feet of formerly vacant space.
Costs incurred to date for this project totaled $7.5 million.
Our redevelopment program focuses on selecting well-located neighborhood and
community shopping centers and creating significant value through re-tenanting
and property redevelopment. During 2005, we did not undertake any significant
redevelopment projects within our core portfolio.
6
Additionally, for the year ending December 31, 2006, we currently estimate that
capital outlays of approximately $5.0 million to $7.0 million will be required
for tenant improvements, related renovations and other property improvements.
Share Repurchase
Repurchases of our Common Shares is an additional use of liquidity as discussed
in Item 5 of this Form 10-K.
SOURCES OF LIQUIDITY
We intend on using Fund II as the primary vehicle for our future acquisitions,
including investments in the RCP Venture and New York Urban/Infill Redevelopment
initiative. Sources of capital for funding property acquisitions, redevelopment,
expansion and re-tenanting, as well as future repurchases of Common Shares are
expected to be obtained primarily from issuance of public equity or debt
instruments, cash on hand, additional debt financings, unrelated member capital
contributions and future sales of existing properties. As of December 31, 2005,
we had a total of approximately $94.0 million of additional capacity under
existing debt facilities, cash and cash equivalents on hand of $90.5 million,
and 11 properties that are unencumbered and available as potential collateral
for future borrowings. We anticipate that cash flow from operating activities
will continue to provide adequate capital for all of our debt service payments,
recurring capital expenditures and REIT distribution requirements.
Issuance of Equity
During November 2004, we issued 1,890,000 Common Shares (the "Offering"). The
Offering was made under shelf registration statements filed under the Securities
Act of 1933, as amended, and previously declared effective by the Securities and
Exchange Commission. The $28.3 million in proceeds from the Offering, net of
related costs, were used to retire above-market, fixed-rate indebtedness as well
as to invest in real estate assets. Following this transaction, we have $46.7
million of remaining capacity to issue equity under our primary shelf
registration statement.
Financing and Debt
At December 31, 2005, mortgage and other notes payable aggregated $406.9
million, net of a $4.1 million deferred credit required pursuant to the
requirements of SFAS no. 141, and were collateralized by 51 properties and
related tenant leases. Interest rates on our outstanding indebtedness ranged
from 4.7% to 8.2% with maturities that ranged from January 2006 to January 2023.
Taking into consideration $92.4 million of notional principal under variable to
fixed-rate swap agreements currently in effect, $334.1 million of the portfolio,
or 82%, was fixed at a 6.1% weighted average interest rate and $72.8 million, or
18% was floating at a 5.8% weighted average interest rate. There is $12.1
million of debt maturing in 2006 which was refinanced subsequent to December 31,
2005. In 2007, $55.5 million is scheduled to mature at a weighted average
interest rate of 5.9%. As we do not anticipate having sufficient cash on hand to
repay such indebtedness, we will need to refinance this indebtedness or select
other alternatives based on market conditions at that time.
The following summarizes the financing and refinancing transactions since
December 31, 2004:
On February 25, 2005, we drew down $20.0 million under an existing revolving
facility, which bears interest at LIBOR plus 150 basis points. The proceeds from
this drawdown were utilized for the Preferred Equity investment with Levitz SL,
LLC.
During March 2005, Fund II obtained a secured revolving line of credit with a
bank for $35,000. The revolving line of credit bears interest rate either at
Prime plus 0% or LIBOR plus 0.75% at borrower's option. The loan matures at the
earlier of three years or the date on which capital commitments have been fully
drawn. At December 31, 2005, the outstanding line of credit balance was $24,400.
During April 2005, we borrowed $7.4 million under an existing secured revolving
facility which was repaid in May 2005.
On May 26, 2005, we closed on a $65.0 million cross-collateralized revolving
facility which is collateralized by five of our properties. The facility bears
interest at LIBOR plus 130 basis points and matures June 1, 2010. At closing,
the lender advanced $12.0 million, of which $7.4 million was used to refinance
an existing facility with the same lender. On June 27, 2005, an additional $20.0
million was drawn on this line. On October 21, 2005, $10.0 million was repaid on
this line resulting in $22.0 million outstanding under this facility as of
December 31, 2005.
On August 31, 2005, we closed on a $17.6 million loan, which bears interest at a
fixed rate of 4.98%. This loan, which matures September 2015, requires the
payment of interest only until October 2010, and thereafter interest and
principal based on 30 year amortization. The proceeds from this loan were in
part used to pay down $15.0 million on an existing line.
Also during August 2005, Acadia-P/A obtained a $12,066 mortgage note secured by
the building at 260 East 161st Street. The note bears interest rate either at
LIBOR plus 1.50% or Prime Rate plus 0.5%. This loan was subsequently refinanced
in the first quarter of 2006 with a $30,000 loan which bears interest at LIBOR
plus 1.40% and matures in April 2008.
7
During September 2005, Acadia-P/A financed 4650 Broadway with a $19,000 mortgage
loan which bears interest at a fixed rate of $5.26%. The loan matures on the
earlier of September 1, 2007 or the termination of the lease with the City of
New York.
On October 17, 2005, we closed on a $12.5 million loan, which bears interest at
a fixed rate of 5.12%. This loan, which matures November 2015, requires the
payment of interest only until November 2008, and thereafter interest and
principal until maturity. The proceeds from this loan were in part used to pay
down $10.0 million on the aforementioned $65.0 million revolving facility.
On December 9, 2005, we closed on a $34.6 million loan, which bears interest at
a fixed rate of 5.53%. This loan, which matures January 2016, requires the
payment of interest only until January 2010, and thereafter interest and
principal until maturity.
In conjunction with the December, 2005 acquisition of 216th Street, Acadia-P/A
obtained a $4,900 loan which bears interest at a rate of LIBOR plus 1.25% and
matures in December 31, 2008.
Asset Sales
Asset sales are an additional source of liquidity for us. During 2005 and 2004,
we sold the Berlin Shopping Center and East End Centre as discussed in "ASSET
SALES AND CAPITAL/ASSET RECYCLING" in Item 1 of this Form 10-K.
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
At December 31, 2005, maturities on our mortgage notes ranged from July 2007 to
January 2016. In addition, we have non-cancelable ground leases at four of our
shopping centers. We also lease space for our White Plains corporate office for
a term expiring in 2010. The following table summarizes our debt maturities and
obligations under non-cancelable operating leases of December 31, 2005:
(amounts in millions) Payments due by period
Less than 1 to 3 3 to 5 More than
Contractual obligation Total 1 year years years 5 years
------ ------- ------ ------ -------
Future debt maturities $ 406.9 $ 24.9 $ 129.1 $ 50.6 $ 202.3
Interest obligations on debt 122.6 22.9 52.7 24.7 22.3
Operating lease obligations 131.3 3.3 6.7 8.1 113.2
----------- ----------- ---------- ----------- -----------
Total $ 660.8 $ 51.1 $ 188.5 $ 83.4 $ 337.8
=========== =========== ========== =========== ===========
OFF BALANCE SHEET ARRANGEMENTS
We have investments in five joint ventures for the purpose of investing in
operating properties as follows:
We own a 49% interest in two partnerships which own the Crossroads Shopping
Center ("Crossroads"). We account for the investment in Crossroads using the
equity method of accounting as we have a non-controlling investment in
Crossroads, but exercise significant influence. As such, our financial
statements reflect our share of income from, but not the assets and liabilities
of, Crossroads. Our pro rata share of Crossroads mortgage debt as of December
31, 2005 was $31.4 million. This fixed-rate debt bears interest at 5.4% and
matures in December 2014.
In addition, Fund I owns interests in four entities for which it also uses the
equity method of accounting as our Fund has a non-controlling investment in
these entities, but exercises significant influence. As such, our financial
statements reflect our Fund's share of income from, but not the assets and
liabilities of, these entities. Fund I's pro-rata share of the mortgage debt for
these entities aggregated $6.2 million as of December 31, 2005 with a weighted
average interest rate of 6.0% and maturing in August 2010.
8
HISTORICAL CASH FLOW
The following discussion of historical cash flow compares our cash flow for the
year ended December 31, 2005 ("2005') with our cash flow for the year ended
December 31, 2004 ("2004").
Cash and cash equivalents were $90.5 million and $16.3 million at December 31,
2005 and 2004, respectively. The increase of $74.2 million was a result of the
following increases and decreases in cash flows:
(amounts in millions) Years Ended December 31,
2005 2004 Variance
----- ---- --------
Net cash provided by operating activities $ 50.2 $ 33.9 $ 16.3
Net cash used in investing activities (135.4) (72.9) (62.5)
Net cash provided by financing activities 159.4 40.0 119.4
The variance in net cash provided by operating activities resulted from an
increase of $25.4 million in operating income before non-cash expenses in 2005,
which was primarily due to a $20.8 million increase in distributions received
from unconsolidated affiliates, additional fee income from the acquisition of
certain management contracts rights in January 2004 and February 2005 and
additional interest income resulting from our preferred equity investment in
2005. These increases were offset by additional general and administrative costs
due to increased compensation and other overhead expenses following the
expansion of our infrastructure. In addition, a net decrease in cash provided by
operating assets and liabilities of $8.6 million resulted primarily from an
increase in receivables related to third party construction cost reimbursements
and an increase in accounts payable and accrued expenses in 2005.
The increase in net cash used in investing activities resulted primarily from an
$82.5 million increase in expenditures for real estate acquisitions, development
and tenant installation during 2005 and a $19.0 million Preferred Equity
investment in 2005. These decreases were offset by a $30.3 million decrease in
investments in and advances to unconsolidated affiliates in 2005, a $7.7 million
increase in return of capital from unconsolidated affiliates in 2005 and $3.9
million of proceeds received from the sale of a property in 2005.
The increase in net cash provided by financing activities resulted from the
following:
Debt repayment in 2004 $ 106.6
Debt repayment in 2005 (44.8)
Additional borrowings in 2005 90.2
Proceeds from issuance of Common Shares in 2004 (28.3)
Proceeds of exercise of Stock Options in 2004 over 2005 (9.0)
Additional capital contributions from partners and members in 2005 3.8
Miscellaneous 0.9
-------------
Total variance $ 119.4
=============
CRITICAL ACCOUNTING POLICIES
Management's discussion and analysis of financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with GAAP. The preparation of these consolidated
financial statements requires management to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses. We
base our estimates on historical experience and assumptions that are believed to
be reasonable under the circumstances, the results of which form the basis for
making judgments about carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. We believe the following
critical accounting policies affect the significant judgments and estimates used
by us in the preparation of our consolidated financial statements.
Valuation of Property Held for Use and Sale
On a quarterly basis, we review the carrying value of both properties held for
use and for sale. We record impairment losses and reduce the carrying value of
properties when indicators of impairment are present and the expected
undiscounted cash flows related to those properties are less than their carrying
amounts. In cases where we do not expect to recover our carrying costs on
properties held for use, we reduce our carrying cost to fair value, and for
properties held for sale, we reduce our carrying value to the fair value less
costs to sell. For the year ended December 31, 2005, an impairment loss of $0.8
million was recognized related to a property that was sold in July of 2005.
Management does not believe that the value of any properties in its portfolio
was impaired as of December 31, 2005 or 2004.
9
Bad Debts
We maintain an allowance for doubtful accounts for estimated losses resulting
from the inability of tenants to make payments on arrearages in billed rents, as
well as the likelihood that tenants will not have the ability to make payment on
unbilled rents including estimated expense recoveries and straight-line rent. As
of December 31, 2005, we had recorded an allowance for doubtful accounts of $3.0
million. If the financial condition of our tenants were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.
INFLATION
Our long-term leases contain provisions designed to mitigate the adverse impact
of inflation on our net income. Such provisions include clauses enabling us to
receive percentage rents based on tenants' gross sales, which generally increase
as prices rise, and/or, in certain cases, escalation clauses, which generally
increase rental rates during the terms of the leases. Such escalation clauses
are often related to increases in the consumer price index or similar inflation
indexes. In addition, many of our leases are for terms of less than ten years,
which permits us to seek to increase rents upon re-rental at market rates if
current rents are below the then existing market rates. Most of our leases
require the tenants to pay their share of operating expenses, including common
area maintenance, real estate taxes, insurance and utilities, thereby reducing
our exposure to increases in costs and operating expenses resulting from
inflation.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Reference is made to the Notes to Consolidated Financial Statements included in
Item 8 of this Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk exposure is to changes in interest rates related to our
mortgage debt. See the consolidated financial statements and notes thereto
included in this Annual Report on Form 10-K for certain quantitative details
related to our mortgage debt.
Currently, we manage our exposure to fluctuations in interest rates primarily
through the use of fixed-rate debt and interest rate swap agreements. As of
December 31, 2005, we had total mortgage debt of $382.5 million of which $334.1
million, or 87% was fixed-rate, inclusive of interest rate swaps, and $48.4
million, or 13%, was variable-rate based upon LIBOR plus certain spreads. As of
December 31, 2005, we were a party to five interest rate swap transactions to
hedge our exposure to changes in interest rates with respect to $92.4 million of
LIBOR based variable-rate debt. We also have three forward-starting interest
rate swaps which commence during 2006, and 2007 and mature from 2010 to 2012
that will hedge our exposure to changes in interest rates with respect to $24.5
million of refinanced LIBOR-based variable rate debt with the matching
maturities.
The following table sets forth information as of December 31, 2005 concerning
our long-term debt obligations, including principal cash flows by scheduled
maturity and weighted average interest rates of maturing amounts (amounts in
millions):
Consolidated mortgage debt:
Weighted
Scheduled average
Year amortization Maturities Total interest rate
---------------- ---------------- -------------- --------------- ---------------
2006 $ 7.9 $ 17.0 $ 24.9 4.9%
2007 9.6 54.9 64.5 5.6%
2008 10.2 54.4 64.6 4.7%
2009 11.2 -- 11.2 n/a
2010 2.7 36.7 39.4 6.4%
Thereafter 58.0 144.3 202.3 5.9%
---------------- -------------- ---------------
$ 99.6 $ 307.3 $ 406.9
================ ============== ===============
Mortgage debt in unconsolidated partnerships (at our pro rata share):
Scheduled Weighted
Year amortization Maturities Total average
interest rate
--------------- ---------------- -------------- --------------- ---------------
2006 $ -- $ -- $ -- n/a
2007 0.4 -- 0.4 n/a
2008 0.5 -- 0.5 n/a
2009 0.5 -- 0.5 n/a
2010 0.5 6.1 6.6 5.5%
Thereafter 2.2 27.4 29.6 5.4%
---------------- -------------- ---------------
$ 4.1 $ 33.5 $ 37.6
================ ============== ===============
10
Of our total outstanding debt, $17.0 million and $54.9 million will become due
in 2006 and 2007, respectively. As we intend on refinancing some or all of such
debt at the then-existing market interest rates which may be greater than the
current interest rate, our interest expense would increase by approximately $0.7
million annually if the interest rate on the refinanced debt increased by 100
basis points. Interest expense on our variable debt of $48.4 million as of
December 31, 2005 would increase $0.5 million if the interest rates increased by
100 basis points. We may seek additional variable-rate financing if and when
pricing and other commercial and financial terms warrant. As such, we would
consider hedging against the interest rate risk related to such additional
variable-rate debt through interest rate swaps and protection agreements, or
other means.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data listed in items 15(a) (1) and
15(a) (2) hereof are incorporated herein by reference.
11
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES
(a) Financial Statements - Form 10-K. The following consolidated financial
information was previously filed with the Company's Annual Report on Form 10-K
filed for the fiscal year ended December 31, 2005, filed with the SEC on March
16, 2006.
Report of Registered Public Accounting Firm for the year ended December 31, 2005 F-2
Report of Registered Public Accounting Firm for the years ended December 31, 2004 and 2003 F-3
Consolidated Balance Sheets as of December 31, 2005 and 2004 F-4
Consolidated Statements of Income for the years ended December 31, 2005, 2004 and 2003 F-5
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2005, 2004 and 2003 F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003 F-7
Notes to Consolidated Financial Statements F-9
Schedule III - Real Estate and Accumulated Depreciation F-36
12
ACADIA REALTY TRUST AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Report of Registered Public Accounting Firm for the year ended December 31, 2005 F-2
Report of Registered Public Accounting Firm for the years ended December 31, 2004 and 2003 F-3
Consolidated Balance Sheets as of December 31, 2005 and 2004 F-4
Consolidated Statements of Income for the years ended December 31, 2005, 2004 and 2003 F-5
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2005, 2004 and 2003 F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003 F-7
Notes to Consolidated Financial Statements F-9
Schedule III - Real Estate and Accumulated Depreciation F-36
F-1
Report of Independent Registered Public Accounting Firm
The Shareholders and Trustees of
Acadia Realty Trust
We have audited the accompanying consolidated balance sheet of Acadia Realty
Trust and subsidiaries (the "Company") as of December 31, 2005 and the related
consolidated statements of income, stockholders' equity, and cash flows for the
year then ended. Our audits also included the financial statement schedule
listed in the Index at Item 15(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Acadia Realty
Trust and subsidiaries at December 31, 2005 and the consolidated results of
their operations and their cash flows for the year then ended, in conformity
with U.S. generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Acadia Realty
Trust and subsidiaries' internal control over financial reporting as of December
31, 2005, based on criteria established in Internal Control--Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 8, 2006 expressed an unqualified opinion
thereon.
As explained in Note 1 to the financial statements, effective January 1, 2006,
Acadia Realty Trust and subsidiaries adopted the provisions of Emerging Issues
Task Force 04-5, Determining Whether a General Partner, or the General Partners
as a Group, Controls a Limited Partnership or Similar Entity When the Limited
Partners Have Certain Rights.
/s/ BDO Seidman, LLP
New York, New York
November 30, 2006
F-2
Report of Independent Registered Public Accounting Firm
The Shareholders and Trustees of
Acadia Realty Trust
We have audited the accompanying consolidated balance sheet of Acadia Realty
Trust and subsidiaries (the "Company") as of December 31, 2004, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the two years in the period ended December 31, 2004. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Acadia Realty
Trust and subsidiaries at December 31, 2004, and the consolidated results of
their operations and their cash flows for each of the two years in the period
ended December 31, 2004, in conformity with U.S. generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 2006, the Company retrospectively adopted the provisions of EITF
04-5, "Accounting for an Investment in a Limited Partnership When the Investor
Is the Sole General Partner and the Limited Partners Have Certain Rights".
/s/ Ernst & Young LLP
New York, New York
November 30, 2006
F-3
Part I. Financial Information
Item 1. Financial Statements
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
Retrospectively Adjusted
December 31,
2005 2004
----- ----
ASSETS
Real estate:
Land $ 141,319 $ 87,573
Buildings and improvements 564,779 506,391
Construction in progress 3,808 5,594
---------- ----------
709,906 599,558
Less: accumulated depreciation 127,819 106,924
---------- ----------
Net real estate 582,087 492,634
Cash and cash equivalents 90,475 16,281
Restricted cash 548 1,213
Cash in escrow 7,789 5,747
Investment in management contracts, net of accumulated amortization of $1,938 and $578, respectively 3,178 3,422
Preferred equity investment 19,000 --
Investments in and advances to unconsolidated affiliates 17,863 30,905
Rents receivable, net 13,000 9,556
Notes receivable 15,733 10,087
Prepaid expenses 4,980 3,229
Deferred charges, net 23,739 12,806
Acquired lease intangibles 8,119 2,178
Other assets 15,354 5,129
Assets of discontinued operations 39,726 43,544
---------- ----------
$ 841,591 $ 636,731
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable $ 386,600 $ 271,571
Notes payable 24,400 --
Acquired leases and other intangibles 6,812 8,459
Accounts payable and accrued expenses 18,302 21,668
Dividends and distributions payable 6,088 5,597
Derivative instruments 180 2,136
Share of distributions in excess of share of income and investment in unconsolidated affiliates 10,315 9,304
Other liabilities 6,964 3,736
Liabilities of discontinued operations 15,064 15,199
---------- ----------
Total liabilities 474,725 337,670
---------- ----------
Minority interest in Operating Partnership 9,204 6,893
Minority interests in partially-owned affiliates 137,086 75,244
---------- ----------
Total minority interests 146,290 82,137
---------- ----------
Shareholders' equity:
Common shares, $.001 par value, authorized 100,000,000 shares, issued and outstanding 31,542,942 and
31,340,637 shares, respectively 31 31
Additional paid-in capital 223,199 222,715
Accumulated other comprehensive loss (12) (3,180)
Deficit (2,642) (2,642)
---------- ----------
Total shareholders' equity 220,576 216,924
---------- ----------
$ 841,591 $ 636,731
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements
F-4
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)
Retrospectively Adjusted
Years ended December 31,
2005 2004 2003
---- ---- ----
Revenues
Minimum rents $ 75,441 $ 68,899 $ 64,509
Percentage rents 1,272 1,348 1,063
Expense reimbursements 14,944 13,336 14,072
Other property income 2,269 785 859
Management fee income from related parties, net 3,564 1,259 282
Interest income 3,316 1,245 788
Other -- 210 1,218
-------------- -------------- ---------------
Total revenues 100,806 87,082 82,791
-------------- -------------- ---------------
Operating Expenses
Property operating 16,087 17,007 16,100
Real estate taxes 9,402 8,187 7,617
General and administrative 16,153 10,941 10,813
Depreciation and amortization 25,905 22,781 23,672
-------------- -------------- ---------------
Total operating expenses 67,547 58,916 58,202
-------------- -------------- ---------------
Operating income 33,259 28,166 24,589
Equity in earnings of unconsolidated affiliates 21,280 513 985
Interest expense (18,804) (16,687) (15,573)
Gain on sale of land -- 932 1,187
Minority interest (13,952) (1,466) (4,899)
-------------- -------------- ---------------
Income from continuing operations before income taxes 21,783 11,458 6,289
Income taxes (2,140) -- --
-------------- -------------- ---------------
Income from continuing operations 19,643 11,458 6,289
-------------- -------------- ---------------
Discontinued operations:
Operating income from discontinued operations 1,823 1,596 1,443
Impairment of real estate (770) -- --
(Loss) gain on sale of properties (50) 6,696 --
Minority interest (20) (165) 121
-------------- -------------- ---------------
Income from discontinued operations 983 8,127 1,564
-------------- -------------- ---------------
Net income $ 20,626 $ 19,585 $ 7,853
============== ============== ===============
Basic earnings per share
Income from continuing operations $ 0.62 $ 0.39 $ 0.24
Income from discontinued operations 0.03 0.28 0.06
-------------- -------------- ---------------
Basic earnings per share $ 0.65 $ 0.67 $ 0.30
============== ============== ===============
Diluted earnings per share
Income from continuing operations $ 0.61 $ 0.38 $ 0.23
Income from discontinued operations 0.03 0.27 0.06
-------------- -------------- ---------------
Diluted earnings per share $ 0.64 $ 0.65 $ 0.29
============== ============== ===============
The accompanying notes are an integral part of these consolidated financial
statements
F-5
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands, except per share amounts)
Common Shares Accumulated
Additional Other Total
Paid-in Comprehensive Shareholders'
Shares Amount Capital Loss Deficit Equity
--------------------------------------------------------------------------
Balance at December 31, 2002 25,257 $ 25 $ 170,851 $ (6,874) $ (2,679) $ 161,323
Conversion of 2,058,804 OP Units to Common Shares
by limited partners of the Operating Partnership 2,059 2 14,898 -- -- 14,900
Conversion of 632 Series A Preferred OP Units to
Common Shares by limited partners of the
Operating Partnership 84 -- 632 -- -- 632
Employee restricted share award 8 -- 410 -- -- 410
Settlement of vested options -- -- (750) -- -- (750)
Dividends declared ($0.595 per Common Share) -- -- (8,160) -- (7,853) (16,013)
Employee exercise of 250 options -- -- 2 -- -- 2
Unrealized gain on valuation of swap agreements -- -- -- 1,369 -- 1,369
Common Shares purchased under Employee Stock
Purchase Plan 1 -- 8 -- -- 8
Net income -- -- -- -- 7,853 7,853
--------- --------- --------- --------- --------- ---------
Balance at December 31, 2003 27,409 27 177,891 (5,505) (2,679) 169,734
Conversion of 746,762 OP Units to Common Shares
by limited partners of the Operating Partnership 747 1 6,395 -- -- 6,396
Shares issued to trustees and employees 5 -- 443 -- -- 443
Employee restricted share award 22 -- 394 -- -- 394
Settlement of vested options -- -- (67) -- -- (67)
Dividends declared ($0.6525 per Common Share) -- -- -- -- (19,548) (19,548)
Employee and trustee exercise of 1,262,000 options 1,262 1 9,265 -- -- 9,266
Unrealized gain on valuation of swap agreements -- -- -- 2,325 -- 2,325
Common Shares issued under Employee Stock
Purchase Plan 6 -- 84 -- -- 84
Issuance of 1,890,000 Common Shares,
net of issuance costs 1,890 2 28,310 -- -- 28,312
Net income -- -- -- -- 19,585 19,585
--------- --------- --------- --------- --------- ---------
Balance at December 31, 2004 31,341 31 222,715 (3,180) (2,642) 216,924
Conversion of 796 Series A Preferred OP Units to
Common Shares by limited partners of the
Operating Partnership 92 -- 696 -- -- 696
Employee restricted share awards 52 -- 1,030 -- -- 1,030
Dividends declared ($0.69 per Common Share) -- -- (1,691) -- (20,626) (22,317)
Employee and trustee exercise of 51,200 options 51 -- 345 -- -- 345
Unrealized gain on valuation of swap agreements -- -- -- 3,168 -- 3,168
Common Shares issued under Employee Stock
Purchase Plan 7 -- 104 -- -- 104
Net income -- -- -- -- 20,626 20,626
--------- --------- --------- --------- --------- ---------
Balance at December 31, 2005 31,543 $ 31 $ 223,199 $ (12) $ (2,642) $ 220,576
========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements
F-6
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Retrospectively Adjusted
Years ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES: 2005 2004 2003
------------- ----------------------------
Net income $ 20,626 $ 19,585 $ 7,853
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 27,747 25,030 25,941
Gain on sale of land -- (932) (1,187)
Loss (gain) on sale of property 50 (6,696) --
Impairment of real estate 770 -- --
Minority interests 13,972 1,631 4,778
Amortization of lease intangibles 980 (519) (619)
Amortization of mortgage note premium (530) (524) (495)
Equity in earnings of unconsolidated affiliates (21,280) (513) (985)
Distributions of operating income from unconsolidated affiliates 21,498 720 985
Amortization of derivative settlement included in interest expense 460 125 23
Provision for bad debts 305 1,254 557
Changes in assets and liabilities:
Restricted cash 701 (709) (504)
Funding of escrows, net (1,827) (2,063) (626)
Rents receivable (3,309) (1,998) (4,967)
Prepaid expenses (783) (442) (1,085)
Other assets (8,785) (3,204) (1,475)
Accounts payable and accrued expenses (2,826) 3,546 1,481
Due to/from related parties -- (344) (126)
Other liabilities 2,470 (62) 1,482
------------- ----------------------------
Net cash provided by operating activities 50,239 33,885 31,031
------------- ----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for real estate and improvements (131,077) (48,611) (75,025)
Deferred acquisition and leasing costs (5,670) (3,014) (2,333)
Payments of accrued expense related to redevelopment project -- -- (2,488)
Investment in and advances to unconsolidated affiliates (455) (30,803)
Return of capital from unconsolidated affiliates 22,847 15,136 62
Collection of notes receivable 1,868 3,929 3,232
Advances of notes receivable (7,914) (10,429) --
Preferred equity investment (19,000) -- --
Proceeds from sale of land -- 932 --
Proceeds from sale of property 3,931 -- --
------------- ----------------------------
Net cash used in investing activities (135,470) (72,860) (76,552)
------------- ----------------------------
F-7
ACADIA REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Retrospectively Adjusted
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage notes payable (44,784) (106,639) (38,564)
Proceeds received on mortgage notes payable 184,466 94,251 51,000
Payment of deferred financing and other costs (2,801) (2,338) (632)
Settlement of treasury lock -- -- (132)
Capital contributions from partners and members 44,122 40,302 24,808
Distributions to partners and members -- (3,238) (3,889)
Dividends paid (21,869) (18,507) (14,896)
Distributions to minority interests in Operating Partnership (380) (416) (1,207)
Distributions on preferred Operating Partnership Units (342) (283) (199)
Distributions to minority interests in majority-owned affiliates (436) (1,031) (1,416)
Contributions from minority interests in majority-owned affiliates 1,000 1,587 1,323
Common Shares issued under Employee Stock Purchase Plan 104 84 8
Settlement of options to purchase Common Shares -- (67) (750)
Exercise of options to purchase Common Shares 345 9,340 --
Termination of derivative instrument -- (1,307) --
Issuance of Common Shares -- 28,312 --
------------- ------------------------------
Net cash provided by (used in) financing activities 159,425 40,050 15,454
------------- ----------------------------
Increase (decrease) in cash and cash equivalents 74,194 1,075 (30,067)
Cash and cash equivalents, beginning of period 16,281 15,206 45,273
------------- ----------------------------
Cash and cash equivalents, end of period $ 90,475 $ 16,281 $ 15,206
============= ============================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest, including capitalized interest of
$260, $304 and $403, respectively $ 18,799 $ 19,167 $ 17,452
============= ============================
Supplemental disclosure of non-cash investing and financing activities:
Acquisition of management contract rights through issuance of Common and
Preferred Operating Partnership Units $ 4,000 $ 4,000 $ --
============= ============================
Accrued earn-out liability on acquired real estate $ -- $ 12,241 $ --
==========================================
Acquisition of real estate through debt $ -- $ -- $ 72,532
==========================================
Acquisition of property through issuance of Preferred Operating Partnership
Units $ 200 $ -- $ --
============= ============================
Conversion of common equity interest into preferred equity interest in
in the Hitchcock and Pine Log investments $ 3,255 $ -- $ --
============= ============================
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retrospectively Adjusted (dollars in thousands, except per share amounts)
1. Organization, Basis of Presentation and Summary of Significant Accounting
Policies
Acadia Realty Trust (the "Company") is a fully integrated, self-managed and
self-administered equity real estate investment trust ("REIT") focused primarily
on the ownership, acquisition, redevelopment and management of retail
properties, including neighborhood and community shopping centers and mixed-use
properties with retail components.
All of the Company's assets are held by, and all of its operations are conducted
through, Acadia Realty Limited Partnership (the "Operating Partnership") and its
majority owned partnerships. As of December 31, 2005, the Company controlled 98%
of the Operating Partnership as the sole general partner. As the general
partner, the Company is entitled to share, in proportion to its percentage
interest, in the cash distributions and profits and losses of the Operating
Partnership. The limited partners represent entities or individuals who
contributed their interests in certain properties or partnerships to the
Operating Partnership in exchange for common or preferred units of limited
partnership interest ("Common or Preferred OP Units"). Limited partners holding
Common OP Units are generally entitled to exchange their units on a one-for-one
basis for common shares of beneficial interest of the Company ("Common Shares").
This structure is commonly referred to as an umbrella partnership REIT or
"UPREIT".
In 2001, the Company formed a partnership, Acadia Strategic Opportunity Fund I,
LP ("Fund I"), and in 2004 formed a limited liability company, Acadia Mervyn
Investors I, LLC ("Mervyns I"), with four institutional investors. The Company
committed a total of $20,000 to Fund I and Mervyns I, and the four institutional
shareholders committed $70,000, for the purpose of acquiring a total of
approximately $300,000 in investments. As of December 31, 2005, the Company has
contributed $16,514 to Fund I and $2,729 to Mervyns I.
The Company is the sole general partner or managing member, with a 22% interest
in both Fund I and Mervyns I and is also entitled to a profit participation in
excess of its invested capital based on certain investment return thresholds.
Decisions made by the general partner, as it relates to purchasing, financing,
and disposition of properties, are subject to the unanimous disapproval of the
Advisory Committee of Fund I, which is comprised of representatives from each of
the four institutional investors. Cash flow is distributed pro-rata to the
partners (including the Company) until they have received a 9% cumulative
return, and the return of all capital contributions. Thereafter, remaining cash
flow is to be distributed 80% to the partners (including the Company) and 20% to
the Company as a carried interest ("Promote"). Through December 31, 2005, the
Company also earned a fee for asset management services equal to 1.5% of the
allocated equity in the remaining Fund I assets, as well as market-rate fees for
property management, leasing and construction services. Effective January 1,
2006, the Company converted the asset management and property management fees to
priority distributions of the same amount as the fees, which entitles the
Company to a special allocation of income equal to the amount of the priority
distributions. Thereafter, cash flow is distributed as previously mentioned and
the Company continues to earn the market leasing and construction fees.
Following the recapitalization of the Brandywine Portfolio in January 2006, all
capital contributions and the required 9% cumulative preferred return have been
distributed to the institutional investors. Accordingly, the Company is now
entitled to a Promote on all future earnings and distributions.
In June of 2004, the Company formed a limited liability company, Acadia
Strategic Opportunity Fund II, LLC ("Fund II"), and in August 2004 formed
another limited liability company, Acadia Mervyn Investors II, LLC ("Mervyns
II"), with the investors from Fund I as well as two additional institutional
investors. With $300,000 of committed discretionary capital, Fund II and Mervyns
II expect to be able to acquire up to $900,000 of investments on a leveraged
basis. The Company's share of committed capital is $60,000. The Company is the
sole managing member with 20% interest in the limited liability companies and is
also entitled to a profit participation in excess of its invested capital based
on certain investment return thresholds. The terms and structure of Fund II are
substantially the same as Fund I with the exceptions that the preferred return
is 8%. As of December 31, 2005, the Company has contributed $10,943 to Fund II
and $2,456 to Mervyns II.
As of December 31, 2005, the Company operated 73 properties, which it owns or
has an ownership interest in, principally located in the Northeast, Mid-Atlantic
and Midwest regions of the United States.
Principles of Consolidation
The consolidated financial statements include the consolidated accounts of the
Company and its controlling investments in partnerships and limited liability
companies including the Operating Partnership. The ownership interests of other
investors in these entities are recorded as minority interests. All significant
intercompany balances and transactions have been eliminated in consolidation.
Investments in entities for which the Company has the ability to exercise
significant influence over, but does not have financial or operating control,
are accounted for using the equity method of accounting. Accordingly, the
Company's share of the earnings (or loss) of these entities are included in
consolidated net income.
Variable interest entities within the scope of Financial Accounting Statements
Board ("FASB") Interpretation No. 46, "Consolidation of Variable Interest
Entities" ("FIN 46-R") are required to be consolidated by their primary
beneficiary. The primary beneficiary of a variable interest entity is determined
to be the party that absorbs a majority of the entity's expected losses,
receives a majority of its expected returns, or both. Management has evaluated
the applicability of FIN 46-R to its investments in certain joint ventures and
determined that these joint ventures do not meet the requirements of a variable
interest entity and, therefore, consolidation of these ventures is not required.
Accordingly, these investments are accounted for using the equity method.
F-9
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retrospectively Adjusted (dollars in thousands, except per share amounts)
1. Organization, Basis of Presentation and Summary of Significant Accounting
Policies, continued
Principles of Consolidation, continued
In 2005, the Emerging Issues Task Force ("EITF") reached a consensus that the
general partners in a limited partnership should determine whether they control
a limited partnership based on the application of the framework as discussed in
EITF 04-5, "Determining Whether a General Partner, or the General Partners as a
Group, Controls a Limited Partnership or Similar Entity When the Limited
Partners Have Certain Rights". Under EITF 04-5, the general partners in a
limited partnership are presumed to control that limited partnership regardless
of the extent of the general partners' ownership interest in the limited
partnership. The assessment of whether the rights of the limited partners should
overcome the presumption of control by the general partners is a matter of
judgment that depends on facts and circumstances. If the limited partners have
either (a) the substantive ability to dissolve (liquidate) the limited
partnership or otherwise remove the general partners without cause or (b)
substantive participating rights, the general partners do not control the
limited partnership. EITF 04-5 was effective immediately for new partnerships
formed and existing limited partnerships for which the partnership agreements
are modified on or after June 29, 2005, and, for all other partnerships, EITF
04-5 would be effective no later than the beginning of the first reporting
period in fiscal years beginning after December 15, 2005. The provisions of EITF
04-5 may be initially applied through either one of two methods: (1) similar to
a cumulative effect of a change in accounting principle or (2) retrospective
application. The Company has determined that its investments in Funds I and II,
and Mervyns I and II, which were previously accounted for under the equity
method of accounting, should be reported on a consolidated basis in the
accompanying financial statements and has elected retrospective application. As
a result, the previously issued consolidated financial statements for the three
years ended December 31, 2005 have been retrospectively adjusted to reflect the
adoption of EITF 04-05. As a result, the financial positions and the results of
operations of Funds I and II, and Mervyns I and II, which were previously
reflected on the equity basis, have been consolidated in the accompanying
financial statements. There was no impact on net income or shareholders' equity
for any of the reported periods in the accompanying consolidated financial
statements as a result of the consolidation.
Use of Estimates
Accounting principles generally accepted in the United States of America
("GAAP") require the Company's management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
The most significant assumptions and estimates relate to the valuation of real
estate, depreciable lives, revenue recognition and the collectability of trade
accounts receivable. Application of these assumptions requires the exercise of
judgment as to future uncertainties and, as a result, actual results could
differ from these estimates.
Real Estate
Real estate assets are stated at cost less accumulated depreciation.
Expenditures for acquisition, development, construction and improvement of
properties, as well as significant renovations are capitalized. Interest costs
are capitalized until construction is substantially complete. Construction in
progress includes costs for significant shopping center expansion and
redevelopment. Depreciation is computed on the straight-line basis over
estimated useful lives of 30 to 40 years for buildings and the shorter of the
useful life or lease term for improvements, furniture, fixtures and equipment.
Expenditures for maintenance and repairs are charged to operations as incurred.
Upon acquisitions of real estate, the Company assesses the fair value of
acquired assets (including land, buildings and improvements, and identified
intangibles such as above and below market leases and acquired in-place leases
and customer relationships) and acquired liabilities in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations" and SFAS No. 142," Goodwill and Other Intangible Assets", and
allocates purchase price based on these assessments. The Company assesses fair
value based on estimated cash flow projections that utilize appropriate discount
and capitalization rates and available market information. Estimates of future
cash flows are based on a number of factors including the historical operating
results, known trends, and market/economic conditions that may affect the
property.
The Company reviews its long-lived assets used in operations for impairment when
there is an event, or change in circumstances that indicates impairment in
value. The Company records impairment losses and reduces the carrying value of
properties when indicators of impairment are present and the expected
undiscounted cash flows related to those properties are less than their carrying
amounts. In cases where the Company does not expect to recover its carrying
costs on properties held for use, the Company reduces its carrying cost to fair
value, and for properties held for sale, the Company reduces its carrying value
to the fair value less costs to sell. During the year ended December 31, 2005,
an impairment loss of $770 was recognized related to a property that was sold in
July of 2005. Management does not believe that the values of its properties
within the portfolio are impaired as of December 31, 2005.
Deferred Costs
Fees and costs paid in the successful negotiation of leases have been deferred
and are being amortized on a straight-line basis over the terms of the
respective leases. Fees and costs incurred in connection with obtaining
financing have been deferred and are being amortized over the term of the
related debt obligation.
F-10
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retrospectively Adjusted (dollars in thousands, except per share amounts)
1. Organization, Basis of Presentation and Summary of Significant Accounting
Policies, continued
Management Contracts
Income from management contracts, net of submanagement fees of $303 and $1,591
for the years ended December 31, 2005 and 2004, respectively, is recognized on
an accrual basis as such fees are earned. The initial acquisition cost of the
management contracts is being amortized over the estimated lives of the
contracts acquired.
Revenue Recognition and Accounts Receivable
Leases with tenants are accounted for as operating leases. Minimum rents are
recognized on a straight-line basis over the term of the respective leases. As
of December 31, 2005 and 2004 unbilled rents receivable relating to
straight-lining of rents were $7,020 and $5,395, respectively and deferred rents
related to the straight lining of rents were $706 and $1,171, respectively.
Certain of these leases also provide for percentage rents based upon the level
of sales achieved by the tenant. Percentage rents are recognized in the period
when the tenants' sales breakpoint is met. In addition, leases typically provide
for the reimbursement to the Company of real estate taxes, insurance and other
property operating expenses. These reimbursements are recognized as revenue in
the period the expenses are incurred.
The Company makes estimates of the uncollectability of its accounts receivable
related to base rents, expense reimbursements and other revenues. An allowance
for doubtful accounts has been provided against certain tenant accounts
receivable that are estimated to be uncollectible. Once the amount is ultimately
deemed to be uncollectible, it is written off. Rents receivable at December 31,
2005 and 2004 are shown net of an allowance for doubtful accounts of $3,211 and
$3,076, respectively. Interest income from notes receivable is recognized on an
accrual basis based on the contractual terms of the notes.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less when purchased to be cash equivalents.
Restricted Cash and Cash in Escrow
Restricted cash and cash in escrow consists principally of cash held for real
estate taxes, property maintenance, insurance, minimum occupancy and property
operating income requirements at specific properties as required by certain loan
agreements.
Income Taxes
The Company has made an election to be taxed, and believes it qualifies as a
REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as
amended (the "Code"). To maintain REIT status for Federal income tax purposes,
the Company is generally required to distribute to its stockholders at least 90%
of its REIT taxable income as well as comply with certain other requirements as
defined by the Code. Accordingly, the Company is not subject to federal
corporate income tax to the extent that it distributes 100% of its REIT taxable
income each year.
Although it may qualify for REIT status for Federal income tax purposes, the
Company is subject to state income or franchise taxes in certain states in which
some of its properties are located. In addition, taxable income from non-REIT
activities managed through the Company's taxable REIT subsidiaries ("TRS") are
subject to Federal, state and local income taxes.
TRS income taxes are accounted for under the asset and liability method as
required SFAS No. 109, "Accounting for Income Taxes". Under the asset and
liability method, deferred income taxes are recognized for the temporary
differences between the financial reporting basis and the tax basis of the TRS
assets and liabilities.
Stock-based Compensation
Prior to 2002, the Company accounted for stock options under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations. Effective June 30, 2005, the Company adopted the fair
value method of recording stock-based compensation contained in SFAS No. 123R,
"Accounting for Stock-Based Compensation". As such, all stock options granted
after December 31, 2001 are reflected as compensation expense in the Company's
consolidated financial statements over their vesting period based on the fair
value at the date the stock-based compensation was granted. As provided for in
SFAS No. 123, the Company elected the "prospective method" for the adoption of
the fair value basis method of accounting for employee stock options. Under this
method, the recognition provisions have been applied to all employee awards
granted, modified or settled after January 1, 2002.
F-11
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retrospectively Adjusted (dollars in thousands, except per share amounts)
1. Organization, Basis of Presentation and Summary of Significant Accounting
Policies, continued
Stock-based Compensation, continued
The following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value based method of accounting for
stock-based employee compensation for vested stock options granted prior to
January 1, 2002. See Note 11 - "Share Incentive Plan" for the assumptions
utilized in valuing the below vested stock options:
Years ended December 31,
-----------------------------
2004 2003
---- ----
Net income:
As reported $ 19,585 $ 7,853
============= =============
Pro forma $ 19,561 $ 7,829
============= =============
Basic earnings per share:
As reported $ 0.67 $ 0.30
============= =============
Pro forma $ 0.67 $ 0.29
============= =============
Diluted earnings per share:
As reported $ 0.65 $ 0.29
============= =============
Pro forma $ 0.65 $ 0.29
============= =============
Recent Accounting Pronouncements
On December 16, 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets - An Amendment of APB Opinion No. 29". The amendments made by SFAS No.
153 are based on the principle that exchanges of nonmonetary assets should be
measured based on the fair value of the assets exchanged. Further, the
amendments eliminate the narrow exception for nonmonetary exchanges of similar
productive assets and replace it with a broader exception for exchanges of
nonmonetary assets that do not have "commercial substance." SFAS No. 153 is
effective for nonmonetary asset exchanges occurring in fiscal periods beginning
after June 15, 2005. The adoption of SFAS No. 153 on its effective date did not
have a material effect on the Company's consolidated financial statements.
On December 16, 2004, the FASB issued SFAS No. 123R (Revised 2004), "Share-Based
Payment". SFAS 123R replaces SFAS No. 123, which the Company adopted on January
1, 2003. SFAS No. 123R requires that the compensation cost relating to
share-based payment transactions be recognized in financial statements and be
measured based on the fair value of the equity or liability instruments issued.
SFAS No. 123R is effective as of the first interim or annual reporting period
that begins after June 15, 2005. The Company does not believe that the adoption
of SFAS No. 123R will have a material effect on the Company's consolidated
financial statements.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections - A Replacement of APB Opinion No. 20 and SFAS No. 3". SFAS No. 154
changes the requirements for the accounting and reporting of a change in
accounting principle by requiring that a voluntary change in accounting
principle be applied retrospectively with all prior periods' financial
statements presented on the new accounting principle, unless it is impracticable
to do so. SFAS No. 154 also requires that a change in depreciation or
amortization for long-lived, non-financial assets be accounted for as a change
in accounting estimate effected by a change in accounting principle and
corrections of errors in previously issued financial statements should be termed
a "restatement". SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005.
The Company believes that the adoption of SFAS No. 154 will not have a material
effect on its consolidated financial statements.
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments - an amendment of FASB Statements No. 133 and No. 14".
This Statement amends SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", and SFAS No. 140, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" and resolves issues
addressed in SFAS No. 133 Implementation Issue No. D1, "Application of SFAS No.
133 to Beneficial Interests in Securitized Financial Assets." This Statement (a)
permits fair value remeasurement for any hybrid financial instrument that
contains an embedded derivative that otherwise would require bifurcation, (b)
clarifies which interest-only strips and principal-only strips are not subject
to the requirements of SFAS No. 133, (c) establishes a requirement to evaluate
interests in securitized financial assets to identify interests that are
freestanding derivatives or that are hybrid financial instruments that contain
an embedded derivative requiring bifurcation, (d) clarifies that concentrations
of credit risk in the form of subordination are not embedded derivatives and (e)
amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose
entity from holding a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial instrument. This
Statement is effective for all financial instruments acquired or issued after
the beginning of an entity's first fiscal year that begins after September 15,
2006. The Company believes that the adoption of SFAS No. 155 will not have a
material effect on its consolidated financial statements.
F-12
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retrospectively Adjusted (dollars in thousands, except per share amounts)
1. Organization, Basis of Presentation and Summary of Significant Accounting
Policies, continued
Comprehensive income
The following table sets forth comprehensive income for the years ended December
31, 2005, 2004 and 2003:
Years ended December 31,
---------------------------------------------------
2005 2004 2003
---------------- --------------- ----------------
Net income $ 20,626 $ 19,585 $ 7,853
Other comprehensive income (1) 3,168 2,325 1,369
---------------- --------------- ----------------
Comprehensive income $ 23,794 $ 21,910 $ 9,222
================ =============== ================
Notes: (1) Relates to the changes in the fair value of derivative instruments
accounted for as cash flow hedges.
The following table sets forth the change in accumulated other comprehensive
loss for the years ended December 31, 2005, 2004 and 2003:
Years ended December 31,
-------------------------------------------------
2005 2004 2003
---------------- --------------- ---------------
Beginning balance $ 3,180 $ 5,505 $ 6,874
Unrealized gain on valuation of derivative instruments (3,168) (2,325) (1,369)
--------------- ---------------- ---------------
Ending balance $ 12 $ 3,180 $ 5,505
=============== ================ ===============
Reclassifications
Certain 2004 and 2003 amounts were reclassified to conform to the 2005
presentation.
2. Acquisition and Disposition of Properties and Discontinued Operations
A. Acquisition and Disposition of Properties
Currently the primary vehicles for the Company's acquisitions are Funds I and II
(Note 1).
Dispositions relate to the sale of shopping centers and land. Gains from these
sales are recognized in accordance with the provisions of SFAS No. 66,
"Accounting for Sales of Real Estate".
Acquisitions
During July of 2005, the Company purchased 4343 Amboy Road located in Staten
Island, New York for $16,635 in cash and $200 in Common OP Units.
In March, 2004, the Company, through a newly-formed joint venture with an
unaffiliated third-party 10% investor, acquired a $9,600 first mortgage loan
secured by a shopping center in Aiken, South Carolina, which was in default, for
$5,500 and subsequently acquired the fee interest in this property through a
deed in lieu of foreclosure. In September, 2004 this joint venture acquired an
adjacent property for a cash price of $1,500. In the fourth quarter of 2005, the
Company exchanged its common equity interest in these properties for a 15%
preferred equity position. As a result of the afore-mentioned exchange, as of
December 31, 2005, the Company accounts for this investment under the equity
method (Note 4).
On September 29, 2004, in conjunction with an investment partner, P/A
Associates, LLC ("P/A"), Fund II, through Acadia-P/A Holding Company, LLC
("Acadia-P/A"), purchased 400 East Fordham Road in the Bronx, New York for
$30,197, inclusive of closing and other related acquisition costs for cash.
Subsequent to the closing, Acadia P/A financed this acquisition with an $18,000
mortgage loan from a bank which bears interest at LIBOR plus 175 basis points
and matures November 2007. On February 25, 2005, Acadia-P/A purchased a parcel
of land adjacent to 400 E. Fordham Road for $867, inclusive of closing and
related acquisition costs.
On October 1, 2004, Acadia-P/A entered into a 95-year ground lease to redevelop
a 16-acre site in Pelham Manor, Westchester County, New York.
On April 6, 2005, Acadia-P/A purchased a 140,000 square foot building located in
the Washington Heights section of Manhattan, New York for a purchase price of
$25,000. In September 2005, Acadia-P/A obtained a mortgage loan of $19,000
secured by this property which requires monthly payments of interest only at a
fixed interest rate of 5.26% and matures September 2007.
F-13
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retrospectively Adjusted (dollars in thousands, except per share amounts)
2. Acquisition and Disposition of Properties and Discontinued Operations,
continued
A. Acquisition and Disposition of Properties, continued
Acquisitions, continued
During July 2005, Fund II, in conjunction with its partners in the Retailer
Controlled Property Venture, invested $1,000 for a 50% interest in a leasehold
located in Rockville, Maryland.
On August 5, 2005, Acadia-P/A purchased 260 East 161st Street in the Bronx, New
York for $49,374, inclusive of closing and other related acquisition costs.
Concurrent with the closing, Acadia-P/A obtained a short term loan of $12,066
which bears interest at LIBOR plus 150 basis points and matures March 2006.
On November 3, 2005, Fund II acquired a 36-year ground lease interest for a
112,000 square foot building located at Oakbrook Center in the Chicago Metro
Area for $6,906, including closing and other acquisition costs. The ground lease
expires in July 2017 and has three 10-year-options. The current tenant's lease
expires in October 2006 with five 5-year-options at the current rent plus one
15-year option at fair market value. The tenant has exercised the first 5-year
option which expires in October 2011.
In December 2005, Acadia-P/A acquired a 65,000 square foot parking garage
located at 10th Avenue in Manhattan, New York for $7,000, including closing and
other acquisition costs. Concurrent with the closing, Acadia-P/A obtained a
$4,900 short term loan which matures on March 31, 2006 and bears interest at
LIBOR plus 125 basis points.
Also in December 2005, Acadia-P/A acquired the remaining 40-year term of a
leasehold interest on land located at Liberty Avenue in Queens, New York for
$308.
Dispositions
On July 7, 2005, the Company sold the Berlin Shopping Center for $4,000. An
impairment loss of $770 was recognized for the year ended December 31, 2005, to
reduce the carrying value of this asset to fair value less costs to sell.
On November 22, 2004, the company disposed of the East End Centre, a 308,000
square foot shopping center in Wilkes-Barre, Pennsylvania, for approximately
$12,405 resulting in a $6,696 gain on the sale.
On November 8, 2002, the Company and an unaffiliated joint venture partner
completed the sale of a contract to purchase land in Bethel, Connecticut, to the
Target Corporation for $1,540 after closing and other related costs. The joint
venture received a $1,632 note receivable for the net purchase price and
additional reimbursements due from the buyer and deferred recognition of the
gain on sale in accordance with SFAS No. 66. The note was paid in full on
January 10, 2003, and as such, the Company's share of the deferred gain, or
$634, was recognized in 2003. Additional amounts held in escrow from the closing
of $932 were released to the Company during 2004 and recognized as additional
gain. Of this amount, $466 was attributable to the Company's joint venture
partner and reflected in minority interest in the Company's consolidated
statement of income.
B. Discontinued Operations
SFAS No. 144 requires discontinued operations presentation for disposals of a
"component" of an entity. In accordance with SFAS No. 144, for all periods
presented, the Company reclassified its consolidated statements of income to
reflect income and expenses for properties which became held for sale subsequent
to December 31, 2001, as discontinued operations and reclassified its
consolidated balance sheets to reflect assets and liabilities related to such
properties as assets and liabilities related to discontinued operations.
The combined results of operations of either sold properties or properties held
for sale are reported separately as discontinued operations for the years ended
December 31, 2005, 2004 and 2003. These are related to the Berlin Shopping
Center, which was sold on July 7, 2005,the East End Centre, which was sold on
November 22, 2004 and five properties which were being marketed for sale
subsequent to December 31, 2005.
F-14
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retrospectively Adjusted (dollars in thousands, except per share amounts)
2. Acquisition and Disposition of Properties and Discontinued Operations,
continued
B. Discontinued Operations, continued
The combined results of operations and assets and liabilities of the properties
classified as discontinued operations are summarized as follows:
ASSETS December 31, December 31,
2005 2004
------------------------------------
Net real estate $ 35,538 $ 38,193
Rents receivable, net 2,214 2,961
Other assets 1,974 2,390
------------------------------------
Total Assets $ 39,726 $ 43,544
====================================
LIABILITIES AND DEFICIT
Mortgage notes payable $ 13,800 $ 14,079
Accounts payable and accrued expenses 653 568
Other liabilities 611 552
------------------------------------
Total liabilities 15,064 15,199
Surplus 24,662 28,345
------------------------------------
Total liabilities and surplus $ 39,726 $ 43,544
====================================
Years ended December 31,
----------------------------------------------
2005 2004 2003
---- ---- ----
Total revenues $ 9,437 $ 11,113 $ 10,982
Total expenses 7,614 9,517 9,539
--------------- -------------- ----------------
1,823 1,596 1,443
Impairment of real estate (770) -- --
(Loss) gain on sale of properties (50) 6,696 --
Minority interest (20) (165) 121
--------------- -------------- ----------------
Income from discontinued operations $ 983 $ 8,127 $ 1,564
=============== ============== ================
F-15
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retrospectively Adjusted (dollars in thousands, except per share amounts)
3. Segment Reporting
The Company has two reportable segments: retail properties and multi-family
properties. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates property performance primarily based on net operating income before
depreciation, amortization and certain nonrecurring items. The reportable
segments are managed separately due to the differing nature of the leases and
property operations associated with the retail versus residential tenants. The
following table sets forth certain segment information for the Company,
reclassified for discontinued operations, as of and for the years ended December
31, 2005, 2004, and 2003 (does not include unconsolidated partnerships):
2005
Retail Multi-Family All
Properties Properties Other Total
----------------- ---------------- ------------ -------------
Revenues $ 86,070 $ 7,688 $ 7,048 $ 100,806
Property operating expenses and real estate taxes 21,236 4,253 -- 25,489
Other Expenses 9,396 267 6,490 16,153
-------------- -------------- ---------- -----------
Net property income before depreciation and amortization $ 55,438 $ 3,168 $ 558 $ 59,164
============== ============== ========== ===========
Depreciation and amortization $ 23,989 $ 1,465 $ 451 $ 25,905
============== ============== ========== ===========
Interest expense $ 17,449 $ 1,355 $ -- $ 18,804
============== ============== ========== ===========
Real estate at cost $ 668,273 $ 41,633 $ -- $ 709,906
============== ============== ========== ===========
Total assets $ 755,691 $ 37,295 $ 48,605 $ 841,591
============== ============== ========== ===========
Expenditures for real estate and improvements $ 130,059 $ 1,018 $ -- $ 131,077
============== ============== ========== ===========
Reconciliation to net income
Net property income before depreciation and amortization $ 59,164
Depreciation and amortization (25,905)
Equity in earnings of unconsolidated partnerships 21,280
Interest expense (18,804)
Income from discontinued operations 983
Income taxes (2,140)
Minority interest (13,952)
--------------
Net income $ 20,626
==============
F-16
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retrospectively Adjusted (dollars in thousands, except per share amounts)
3. Segment Reporting, continued
2004
Retail Multi-Family All
Properties Properties Other Total
---------------- ---------------- ------------ -------------
Revenues $ 76,529 $ 7,596 $ 2,957 $ 87,082
Property operating expenses and real estate taxes 21,060 4,134 -- 25,194
Other expenses 7,593 490 2,858 10,941
---------------- ---------------- ------------ -------------
Net property income before depreciation and amortization $ 47,876 $ 2,972 $ 99 $ 50,947
================ ================ ============ =============
Depreciation and amortization $ 21,020 $ 1,433 $ 328 $ 22,781
================ ================ ============ =============
Interest expense $ 15,169 $ 1,518 $ -- $ 16,687
================ ================ ============ =============
Real estate at cost $ 558,943 $ 40,615 $ -- $ 599,558
================ ================ ============ =============
Total assets $ 579,110 $ 36,872 $ 20,749 $ 636,731
================ ================ ============ =============
Expenditures for real estate and improvements $ 47,769 $ 842 $ -- $ 48,611
================ ================ ============ =============
Reconciliation to net income
Net property income before depreciation and amortization $ 50,947
Depreciation and amortization (22,781)
Equity in earnings of unconsolidated partnerships 513
Interest expense (16,687)
Gain on sale of land 932
Income from discontinued operations 8,127
Minority interest (1,466)
----------------
Net income $ 19,585
================
F-17
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retrospectively Adjusted (dollars in thousands, except per share amounts)
3. Segment Reporting, continued
2003
Retail Multi-Family All
Properties Properties Other Total
---------------- ---------------- ------------- -------------
Revenues $ 73,185 $ 7,318 $ 2,288 $ 82,791
Property operating expenses and real estate taxes 19,530 4,187 -- 23,717
Other expenses 8,751 1,005 1,057 10,813
---------------- ---------------- ------------- -------------
Net property income before depreciation and amortization $ 44,904 $ 2,126 $ 1,231 $ 48,261
================ ================ ============= =============
Depreciation and amortization $ 22,015 $ 1,336 $ 321 $ 23,672
================ ================ ============= =============
Interest expense $ 14,043 $ 1,530 $ -- $ 15,573
================ ================ ============= =============
Real estate at cost $ 502,118 $ 39,774 $ -- $ 541,892
================ ================ ============= =============
Total assets $ 505,818 $ 36,830 $ 13,630 $ 556,278
================ ================ ============= =============
Expenditures for real estate and improvements $ 73,647 $ 1,378 $ -- $ 75,025
================ ================ ============= =============
Reconciliation to net income
Net property income before depreciation and amortization $ 48,261
Depreciation and amortization (23,672)
Equity in earnings of unconsolidated partnerships 985
Interest expense (15,573)
Gain on sale of land 1,187
Income from discontinued operations 1,564
Minority interest (4,899)
----------------
Net income $ 7,853
================
F-18
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retrospectively Adjusted (dollars in thousands, except per share amounts)
4. Investments in Unconsolidated Partnerships
Crossroads
The Company owns a 49% interest in the Crossroads Joint Venture and Crossroads
II Joint Venture (collectively, "Crossroads") which collectively own a 311,000
square foot shopping center in White Plains, New York. The Company accounts for
its investment in Crossroads using the equity method. Summary financial
information of Crossroads and the Company's investment in and share of income
from Crossroads follows:
December 31,
------------------------------
2005 2004
-------------- --------------
Balance Sheets
Assets:
Rental property, net $ 6,458 $ 6,939
Other assets 5,543 6,129
-------------- --------------
Total assets $ 12,001 $ 13,068
============== ==============
Liabilities and partners' equity
Mortgage note payable $ 64,000 $ 64,000
Other liabilities 2,359 2,481
Partners' equity (54,358) (53,413)
-------------- --------------
Total liabilities and partners' equity $ 12,001 $ 13,068
============== ==============
Company's investment $ (10,315) $ (9,304)
============== ==============
Years Ended December 31,
---------------------------------------------
2005 2004 2003
-------------- -------------- -------------
Statements of Income
Total revenue $ 8,772 $ 8,160 $ 8,324
Operating and other expenses 2,581 2,707 2,465
Interest expense 3,632 2,740 2,542
Depreciation and amortization 654 778 570
-------------- -------------- -------------
Net income $ 1,905 $ 1,935 $ 2,747
============== ============== =============
Company's share of net income $ 988 $ 1,112 $ 1,377
Amortization of excess investment (See below) 392 392 392
-------------- -------------- -------------
Income from partnerships $ 596 $ 720 $ 985
============== ============== =============
The unamortized excess of the Company's investment over its share of the net
equity in Crossroads at the date of acquisition was $19,580. The portion of this
excess attributable to buildings and improvements are being amortized over the
life of the related property.
Fund I and Fund II
Funds I and II have a minority interest in the following investments which are
accounted for under the equity method:
- Fund I has a 50% interest in Haygood Shopping Center and Sterling Heights
Shopping Center which was acquired for an aggregate investment of $3,184.
These assets are part of the portfolio that the Company currently manages
as a result of its January 2004 acquisition of certain management contracts
(note 7).
- Fund I has a 50% interest in a 35,000 square foot shopping center in
Tarrytown, New York, in which the Company has invested approximately
$3,200.
- Fund I has a preferred equity interest in Hitchcock and Pine Log Plazas
(Note 2A).
- Fund II has a 50% interest in a leasehold located in Rockville, Maryland
in which the Company has invested $1,008 together with its partners in the
Retailer Controlled Property Venture.
F-19
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retrospectively Adjusted (dollars in thousands, except per share amounts)
4. Investments in Unconsolidated Partnerships, continued
Fund I and Fund II, continued
Summary financial information for these investments is as follows:
December 31,
-------------------------------------
2005 2004
------------------ ----------------
Balance Sheets
Assets:
Rental property, net $ 31,093 $ 22,895
Other assets 8,708 1,756
------------------ ----------------
Total assets $ 39,801 $ 24,651
================== ================
Liabilities and partners' and members' equity
Mortgage note payable $ 16,340 $ 10,579
Other liabilities 5,265 1,401
Partners' equity 18,196 12,671
------------------ ----------------
Total liabilities and partners' or members' equity $ 39,801 $ 24,651
================== ================
Company's investment $ 10,489 $ 6,308
================== ================
Years Ended December 31,
---------------------------------------------
2005 2004 2003
-------------- -------------- -------------
Statements of Income
Total revenue $ 3,778 $ 380 $ -
Operating and other expenses 2,206 - -
Interest expense 906 384 -
Depreciation and amortization 927 416 -
-------------- -------------- -------------
Net loss $ (261) $ (420) $ -
============== ============== =============
Company's share of net loss $ (268) $ (207) $ -
============== ============== =============
As of December 31, 2005, the Company has provided $3,900 of mortgage financing
secured by the Hitchcock Plaza and Pine Log Plaza. The loan matures March 2006
and currently requires the payment of interest at 6%. In addition, the Company
had outstanding advances to affiliates totaling $752 and $997 as of December 31,
2005 and 2004, respectively.
Mervyns I and II
On January 27, 2004, the Company entered into the Retailer Controlled Property
Venture ("RCP Venture") with Klaff Realty, L.P. ("Klaff") and Klaff's long-time
capital partner Lubert-Adler Management, Inc. for the purpose of making
investments in surplus or underutilized properties owned by retailers. On
September 2, 2004, Mervyns I and Mervyns II invested, on a non-recourse basis,
in the acquisition of Mervyn's through a minority interest in a newly-formed
Limited Liability Company, KLA/Mervyns, L.L.C. ("KLAM") which, as part of an
investment consortium of Sun Capital Partners, Inc. and Cerberus Capital
Management L.P., acquired Mervyn's from Target Corporation. The total
acquisition price was $1,175,000, with Mervyns I and II's combined $23,520 share
of the investment divided equally between them. During the year ended December
31, 2005, Mervyns I and II contributed an additional total of $1,040 into KLAM.
During the year ended December 31, 2005, Mervyns I and II recognized $20,902 of
income from KLAM representing its share of net income from this investment and
received distributions totaling $42,740. As of December 31, 2005, Mervyns I and
II net investment in KLAM totaled $2,722.
F-20
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retrospectively Adjusted (dollars in thousands, except per share amounts)
4. Investments in Unconsolidated Partnerships, continued
Preferred Equity Investment
In March of 2005, the Company invested $20,000 in a preferred equity position
("Preferred Equity") with Levitz SL, L.L.C. ("Levitz SL"), the owner of 2.5
million square feet of fee and leasehold interests in 30 locations (the
"Properties"), the majority of which are currently leased to Levitz Furniture
Stores. Klaff Realty L.P. ("Klaff") is a managing member of Levitz SL. The
Preferred Equity receives a return of 10%, plus a minimum return of capital of
$2,000 per annum. At the end of 12 months, the rate of return will be reset to
the six-month LIBOR plus 644 basis points. The Preferred Equity is redeemable at
the option of Levitz SL at any time, although if redeemed during the first 12
months, the redemption price is equal to the outstanding amount of the Preferred
Equity, plus the return calculated for the remainder of the 12-month period. In
October 2005, Levitz Furniture filed for bankruptcy under Chapter 11. The
Company has a preferred equity investment of $19,000 at December 31, 2005.
Levitz was in arrears in minimum return of capital by $0.5 million. This
investment was not made based on Levitz remaining as a tenant, but rather based
on the underlying value of the real estate, which management believes is
sufficient to recover our equity investment and the return attributable thereto.
Accordingly, no reserve is required at December 31, 2005.
5. Deferred Charges
Deferred charges consist of the following as of December 31, 2005 and 2004:
December 31,
=============================
2005 2004
---- -----
Deferred financing costs $ 9,631 $ 7,552
Deferred leasing and other costs 25,855 16,293
-------------- --------------
35,486 23,845
Accumulated amortization (11,747) (11,039)
-------------- --------------
$ 23,739 $ 12,806
============== ==============
6. Mortgage Loans and Other Debt
At December 31, 2005, mortgage notes payable aggregated $382,463 and were
collateralized by 51 properties and related tenant leases. Interest rates ranged
from 4.7% to 8.2%. Mortgage payments are generally due in monthly installments
of principal and/or interest and mature on various dates through 2022. Certain
loans are cross-collateralized and cross-defaulted. The loan agreements contain
customary representations, covenants and events of default. Certain loan
agreements require the Company to comply with certain affirmative and negative
covenants, including the maintenance of certain debt service coverage and
leverage ratios.
On February 25, 2005, the Company drew down $20,000 under an existing revolving
facility, which bears interest at LIBOR plus 150 basis points. The proceeds from
this drawdown were utilized for the Preferred Equity investment (Note 4).
During April 2005, the company borrowed $7,400 under an existing secured
revolving facility.
On May 26, 2005, the Company closed on a $65,000 cross-collateralized revolving
facility which is collateralized by five of the Company's properties. The
facility bears interest at LIBOR plus 130 basis points and matures June 1, 2010.
At closing, the lender advanced $12,000, of which $7,400 was used to refinance
an existing facility with the same lender. On June 27, 2005, an additional
$20,000 was drawn on this line. On October 21, 2005, $10,000 was repaid on this
line resulting in $22,000 outstanding under this facility as of December 31,
2005.
On August 31, 2005, the company closed on a $17,600 loan, which bears interest
at a fixed rate of 4.98%. This loan, which matures September 2015, requires the
payment of interest only until October 2010, and thereafter interest and
principal based on 30 year amortization. The proceeds from this loan were in
part used to pay down $15,000 on an existing line.
On October 17, 2005, the Company closed on a $12,500 loan, which bears interest
at a fixed rate of 5.12%. This loan, which matures November 2015, requires the
payment of interest only until November 2008, and thereafter interest and
principal until maturity. The proceeds from this loan were in part used to pay
down $10,000 on the aforementioned $65,000 revolving facility.
On December 9, 2005, the Company closed on a $34,600 loan, which bears interest
at a fixed rate of 5.53%. This loan, which matures January 2016, requires the
payment of interest only until January 2010, and thereafter interest and
principal until maturity.
F-21
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retrospectively Adjusted (dollars in thousands, except per share amounts)
6. Mortgage Loans, continued
Fund II
During March 2005, the Fund obtained a secured revolving line of credit with a
bank for $35,000. The revolving line of credit bears interest rate either at
Prime plus 0% or LIBOR plus 0.75% at borrower's option. The loan matures at the
earlier of three years or the date on which capital commitments have been fully
drawn. At December 31, 2005, the outstanding line of credit balance was $24,400.
During August 2005, Acadia-P/A obtained a $12,066 mortgage note secured by the
building at 260 East 161st Street. The note bears interest rate either at LIBOR
plus 1.50% or Prime Rate plus 0.5%. This loan was subsequently refinanced in the
first quarter of 2006 with a $30,000 loan which bears interest at LIBOR plus
1.40% and matures in April 2008.
During September 2005, Acadia-P/A financed 4650 Broadway with a $19,000 mortgage
loan which bears interest at a fixed rate of $5.26%. The loan matures on the
earlier of September 1, 2007 or the termination of the lease with the City of
New York.
In conjunction with the December, 2005 acquisition of 216th Street, Acadia-P/A
obtained a $4,900 loan which bears interest at a rate of LIBOR plus 1.25% and
matures in December 31, 2008.
The following table summarizes the Company's mortgage indebtedness as of
December 31, 2005 and 2004 (exclusive of mortgage debt of discontinued
operations of $13,800 and $14,079, respectively):
December 31, December 31, Interest Rate at Properties Payment
2005 2004 December 31, 2005 Maturity Encumbered Terms
--------------- --------------- --------------------------------------------------------
Mortgage notes payable - variable rate
Washington Mutual Bank, FA $ 23,669 $ 24,294 5.89% (LIBOR + 1.50%) 04/01/11 (1) (23)
Bank of America, NA 44,485 44,485 5.79% (LIBOR + 1.40%) 06/29/12 (2) (24)
Bank of America, NA 10,082 10,252 5.79% (LIBOR + 1.40%) 06/29/12 (3) (23)
Bank of America, NA 22,000 -- 5.69% (LIBOR + 1.30%) 06/01/10 (4) (25)
Bank of America, NA 12,066 -- 5.89% (LIBOR + 1.50%) 01/31/06 (5) (25)
Bank of America, NA 4,900 -- 5.64% (LIBOR + 1.25%) 12/31/08 (6) (25)
Bank of China 18,000 18,000 6.14% (LIBOR +1.75%) 11/01/07 (7) (25)
Bank One, N.A. 5,570 5,704 6.39% (LIBOR + 2.00%) 10/05/07 (8) (23)
Interest rate swaps (92,376) (86,156)
------------ ------------
Total variable-rate debt 48,396 16,579
------------ ------------
Mortgage notes payable - fixed rate
Bank of America, N.A. 15,882 16,062 7.55% 01/01/11 (9) (23)
RBS Greenwich Capital 15,000 15,000 5.64% 09/06/14 (10) (23)
RBS Greenwich Capital 15,894 16,000 5.19% 06/01/13 (11) (26)
SunAmerica Life Insurance Company 12,936 13,189 6.46% 07/01/07 (12) (23)
RBS Greenwich Capital 17,600 -- 4.98% 09/06/15 (13) (23)
RBS Greenwich Capital 12,500 -- 5.12% 11/06/15 (14) (27)
Bear Stearns Commercial Mortgage, Inc. 34,600 -- 5.53% 01/01/16 (15) (28)
Cortland Deposit Corp. 9,900 12,375 6.62% 02/01/09 (16) (29)
Cortland Deposit Corp. 9,785 12,232 6.51% 01/15/09 (17) (29)
The Ohio National Life Insurance Company 4,667 4,797 8.20% 06/01/22 (18) (23)
Canada Life Insurance Company 6,945 7,128 8.00% 01/01/23 (19) (23)
Bank of China 19,000 -- 5.26% 09/01/07 (20) (25)
UBS Warburg Real Estate Investments, Inc. 30,000 30,000 4.69% 02/11/08 (21)
UBS Warburg Real Estate Investments, Inc. 21,018 21,253 7.01% 07/11/12 (21)
UBS Warburg Real Estate Investments, Inc. 15,964 16,134 7.32% 06/11/12 (22)
Interest rate swaps 92,376 86,156 5.77% (30)
------------ ------------
Total fixed-rate debt 334,067 250,326
------------ ------------
$ 382,463 $ 266,905
============ ============
F-22
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retrospectively Adjusted (dollars in thousands, except per share amounts)
6. Mortgage Loans, continued
Notes:
(1) Ledgewood Mall (17) Safeway Portfolio
(2) Branch Shopping Center (18) Amherst Marketplace
Abington Towne Center
Methuen Shopping Center (19) Sheffield Crossing
(3) Smithtown Shopping Center (20) 4650 Broadway Avenue
(4) Bloomfield Town Square (21) Brandywine Town Center
Walnut Hill Plaza
Hobson West Plaza (22) Market Square Shopping Center
Marketplace of Absecon
Village Apartments (23) Monthly principal and interest payments
There is additional capacity of
$43,000 on this facility (24) Annual principal and monthly interest payments
(5) 260 East 161st Street (25) Interest only monthly payments
(6) 216th Street (26) Interest only until 5/05; monthly principal and interest
payments thereafter
(7) 400 East Fordham Road (27) Interest only until 11/08; monthly principal and interest
payments thereafter
(8) Granville Center
(28) Interest only until 1/10;
monthly principal and
interest payments thereafter
(9) GHT Apartments/Colony (29) Semi-annual interest and
annual principal payments
(10) New Loudon Center (30) Maturing between 10/1/06 and
1/1/11
(11) 239 Greenwich Avenue (12) Merrillville Plaza
(13) Crescent Plaza
(14) Pacesetter Park Shopping Plaza
(15) Elmwood Park Shopping Center
(16) Kroger Portfolio
F-23
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retrospectively Adjusted (dollars in thousands, except per share amounts)
6. Mortgage Loans, continued
Pursuant to the requirements of SFAS No. 141, the Company has recorded a
deferred credit of $4,137 and $4,666 as of December 31, 2005 and 2004,
respectively, which is included in mortgage notes payable in the accompanying
Consolidated Balance Sheet and is being amortized to interest expense over the
remaining terms of the underlying mortgage loans.
The scheduled principal repayments of all indebtedness as of December 31, 2005
are as follows:
2006 $ 24,813
2007 64,463
2008 64,562
2009 11,230
2010 39,484
Thereafter 202,311
------------
$ 406,863
============
7. Shareholders' Equity and Minority Interests
Common Shares
In March of 2004, a secondary public offering was completed for a total of
5,750,000 Common Shares. The selling shareholders, Yale University and its
affiliates ("Yale") and Ross Dworman, a former trustee, sold 4,191,386 and
1,558,614 Common Shares, respectively. The Company did not sell any Common
Shares in the offering and did not receive any proceeds from the offering.
During November 2004, the Company issued 1,890,000 Common Shares (the
"Offering"). The $28,312 in proceeds from the Offering, net of related costs,
was used to retire above-market, fixed-rate indebtedness as well as to invest in
real estate assets. Yale and Kenneth F. Bernstein, the Company's Chief Executive
Officer, also sold 1,000,000, and 110,000 Common Shares, respectively, in
connection with this transaction. Mr. Bernstein sold 110,000 Common Shares in
connection with his exercise of options to purchase 150,000 Common Shares. In
October 2005, the Board of Trustees approved a resolution permitting one of its
institutional shareholders, which at the time owned approximately 3.8% of the
Company's outstanding Common Shares, to acquire additional shares through open
market purchases. This waiver of the Company's share ownership limitation
permitted this shareholder to acquire up to an additional 6% of the Company's
shares through December 31, 2005, or an aggregate of up to 9.8% of the Company's
Common Shares.
Through December 31, 2005, the Company had repurchased 2,051,605 Common Shares
at a total cost of $11,650 (of which 2,009,509 of these Common Shares have been
subsequently reissued) under its share repurchase program that allows for the
repurchase of up to $20,000 of its outstanding Common Shares. The repurchased
shares are reflected as a reduction of par value and additional paid-in capital.
Minority Interests
Minority interest in the Operating Partnership represents (i) the limited
partners' interest of 653,360 and 392,255 Common OP Units at December 31, 2005
and 2004, respectively, (ii) 884 and 1,580 Series A Preferred OP Units at
December 31, 2005 and 2004, respectively, with a nominal value of $1,000 per
unit, which are entitled to a preferred quarterly distribution of the greater of
(a) $22.50 per unit (9% annually) per Series A Preferred OP Unit or (b) the
quarterly distribution attributable to a Series A Preferred OP Unit if such unit
were converted into a Common OP Unit, and (iii) 4,000 Series B Preferred OP
Units at both December 31, 2005 and 2004 with a nominal value of $1,000 per
unit, which are entitled to a preferred quarterly distribution of the greater of
(a) $13.00 (5.2% annually) per unit or (b) the quarterly distribution
attributable to a Series B Preferred OP Unit if such unit were converted into a
Common OP Unit.
During July 2005, the Company issued to a third party 11,105 Restricted Common
OP Units valued at $18.01 per unit in connection with the purchase of 4343 Amboy
Road. The holder of the Common OP Units was restricted from selling these for
six months from the date of the transaction.
Minority interests in partially-owned affiliates include third-party interests
in three partnerships in which the Company has a majority ownership position. As
discussed in Note 1, the Company's previously issued consolidated financial
statements for the three years ended December 31, 2005 have been restated to
reflect the adoption of EITF 04-5. Accordingly, the accompanying financial
statements have been adjusted to include the limited partners' and non-managing
members' interests in Funds I and II, and Mervyns I and II as additional
minority interests in partially-owned affiliates.
F-24
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retrospectively Adjusted (dollars in thousands, except per share amounts)
7. Shareholders' Equity and Minority Interests, continued
In February 2005, the Company issued $4,000 (250,000 Restricted Common OP Units
valued at $16.00 each) of Restricted Common OP Units to Klaff in consideration
for the 25% balance of certain management contract rights as well as the rights
to 25% of certain potential future revenue streams. This followed the
acquisition of 75% of the management contract rights and 75% of certain
potential future revenue streams from Klaff in January 2004 as reflected below.
The Restricted Common OP Units are convertible into the Company's Common Shares
on a one-for-one basis after a five-year lock-up period. $1,116 of the purchase
price was allocated to investment in management contracts in the consolidated
balance sheet and is being amortized over the estimated remaining life of the
contracts. The remainder of the purchase price has been allocated to deferred
charges in the consolidated balance sheet and will be allocated to future
revenue streams as identified.
During 2005 and 2004, various limited partners converted a total of 746,762 and
2,058,804 Common OP Units into Common Shares on a one-for-one basis,
respectively. Mr. Dworman, a trustee of the Company, received 34,841 of Common
OP Units through various affiliated entities during 2003 (Note 8).
The Series A Preferred OP Units were issued on November 16, 1999 in connection
with the acquisition of all the partnership interests of the limited partnership
which owns the Pacesetter Park Shopping Center. Certain Series A Preferred OP
Unit holders converted 696 Series A Preferred OP Units into 92,800 Common OP
Units and then into Common Shares during 2005. The Series A Preferred OP Units
are currently convertible into Common OP Units based on the stated value divided
by $7.50. After the seventh anniversary following their issuance, either the
Company or the holders can call for the conversion of the Series A Preferred OP
Units at the lesser of $7.50 or the market price of the Common Shares as of the
conversion date.
The Series B Preferred OP Units were issued to Klaff Realty LP ("Klaff") in
January 2004 in consideration for the acquisition of certain management contract
rights. The Preferred OP Units are convertible into Common OP Units based on the
stated value of $1,000 divided by $12.82 at any time. Additionally, Klaff may
redeem them at par for either cash or Common OP Units after the earlier of the
third anniversary of their issuance, or the occurrence of certain events
including a change in the control of the Company. Finally, after the fifth
anniversary of the issuance, the Company may redeem the Preferred OP Units and
convert them into Common OP Units at market value as of the redemption date.
8. Related Party Transactions
In February 2005, the Company issued $4,000 of Restricted Common OP Units to
Klaff for the balance of certain management contract rights as well as the
rights to certain potential future revenue streams (Note 7).
In March 2005, the Company completed a $20,000 Preferred Equity Investment with
Levitz SL, of which Klaff, a common and preferred OP unit holder, is the
managing member.
The Company also earns fees in connection with its rights to provide asset
management, leasing, disposition, development and construction services for an
existing portfolio of retail properties and/or leasehold interests in which
Klaff, a preferred OP unit holder, has an interest. Net fees earned by the
Company in connection with this portfolio were $3,602 and $885 for the years
ended December 31, 2005 and 2004, respectively. These amounts are net of the
payment of sub-management fees to Klaff of $303 and $1,591 for the years ended
December 31, 2005 and 2004, respectively.
The Company managed one property in which a major shareholder of the Company had
an ownership interest and earned a management fee of 3% of tenant collections.
Management fees earned by the Company under this contract aggregated $142 for
the year ended December 31, 2004. In addition, the Company earned leasing
commission of $157 related to this property for the year ended December 31,
2004. In connection with the sale of the property on July 12, 2004, the
management contract was terminated and the Company earned a $75 disposition fee.
Lee Wielansky, the Lead Trustee of the Company, was paid a consulting fee of
$100 for both years ended December 31, 2005 and 2004.
F-25
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retrospectively Adjusted (dollars in thousands, except per share amounts)
8. Related Party Transactions, continued
On March 19, 2004, Ross Dworman, a former trustee of the Company, and certain
entities controlled by Mr. Dworman converted 1,000,000 share options and 548,614
OP Units held by them in connection with a secondary public offering. Included
in the Common OP Units converted to Common Shares during 2003 were 2,300 Common
OP Units converted by Mr. Dworman who then transferred them to a charitable
foundation in accordance with a pre-existing arrangement.
During the year ended December 31, 2004, Kenneth F. Bernstein, President and
Chief Executive Officer, and certain trustees of the Company exercised 400,000
and 20,000 options to purchase Common Shares, respectively.
9. Tenant Leases
Space in the shopping centers and other retail properties is leased to various
tenants under operating leases that usually grant tenants renewal options and
generally provide for additional rents based on certain operating expenses as
well as tenants' sales volume.
Minimum future rentals to be received under non-cancelable leases for shopping
centers and other retail properties as of December 31, 2005 are summarized as
follows:
2006 $ 79,057
2007 72,790
2008 66,962
2009 62,664
2010 53,254
Thereafter 275,990
------------
$ 610,717
============
Minimum future rentals above include a total of $4,180 for three tenants (with
four leases), which have filed for bankruptcy protection. None of these leases
have been rejected nor affirmed. During the years ended December 31, 2005, 2004
and 2003, no single tenant collectively accounted for more than 10% of the
Company's total revenues.
10. Lease Obligations
The Company leases land at six of its shopping centers, which are accounted for
as operating leases and generally provide the Company with renewal options.
Ground rent expense was $3,480 (including capitalized ground rent at a property
under development of $2,684, $1,463 and $780 for the years ended December 31,
2005, 2004 and 2003, respectively. The leases terminate at various dates between
2008 and 2066. Four of these leases provide the Company with options to renew
for additional terms aggregating from 20 to 60 years. The Company leases space
for its White Plains corporate office for a term expiring in 2010. Office rent
expense under this lease was $412, $239 and $242 for the years ended December
31, 2005, 2004 and 2003, respectively. Future minimum rental payments required
for leases having remaining non-cancelable lease terms are as follows:
2006 $ 3,292
2007 3,348
2008 3,430
2009 3,727
2010 4,381
Thereafter 112,118
------------
$ 130,296
============
11. Share Incentive Plan
During 1999, the Company adopted the 1999 Share Incentive Plan (the "1999
Plan"), which replaced both the 1994 Share Option Plan and the 1994 Non-Employee
Trustees' Share Option Plan. The 1999 Plan authorizes the issuance of options
equal to up to 8% of the total Common Shares outstanding from time to time on a
fully diluted basis. However, not more than 4,000,000 of the Common Shares in
the aggregate may be issued pursuant to the exercise of options and no
participant may receive more than 5,000,000 Common Shares during the term of the
1999 Plan. Options are granted by the Share Option Plan Committee (the
"Committee"), which currently consists of two non-employee Trustees, and will
not have an exercise price less than 100% of the fair market value of the Common
Shares and a term of greater than ten years at the grant date. Vesting of
options is at the discretion of the Committee with the exception of options
granted to non-employee Trustees, which vest in five equal annual installments
beginning on the date of grant.
F-26
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retrospectively Adjusted (dollars in thousands, except per share amounts)
11. Share Incentive Plan, continued
The 1999 Plan also provides for the granting of share appreciation rights,
restricted shares and performance units/shares. Share appreciation rights
provide for the participant to receive, upon exercise, cash and/or Common
Shares, at the discretion of the committee, equal to the excess of the market
value of the Common Shares at the exercise date over the market value of the
Common Shares at the Grant Date. The Committee will determine the award and
restrictions placed on restricted shares, including the dividends thereon and
the term of such restrictions. The Committee also determines the award and
vesting of performance units and performance shares based on the attainment of
specified performance objectives of the Company within a specified performance
period. Through December 31, 2005, no share appreciation rights or performance
units/shares have been awarded.
During 2003, the Company adopted the 2003 Share Incentive Plan (the "2003 Plan")
because no Common Shares remained available for future grants under the 1999
Plan. The 2003 Plan provides for the granting of options, share appreciation
rights, restricted shares and performance units (collectively, "Awards") to
officers, employees and trustees of the Company and consultants to the Company.
The 2003 Plan is generally identical to the 1999 Plan, except that the maximum
number of Common Shares that the Company may issue pursuant to the 2003 Plan is
four percent of the Common Shares outstanding from time to time on a fully
diluted basis. However, no participant may receive more than 1,000,000 Common
Shares during the term of the 2003 Plan with respect to Awards. Pursuant to the
2003 Plan, non-employee Trustees receive an automatic grant of 3,000 options
following each Annual Meeting of Shareholders.
As of December 31, 2005, the Company has 437,242 options outstanding to officers
and employees. These fully vested options are for ten-year terms from the grant
date and vested in three equal annual installments which began on the grant
date. In addition, 40,000 options have been issued to non-employee Trustees of
which 13,400 options were vested as of December 31, 2005.
During 2005, the Company issued a total of 109,826 restricted Common Shares
("Restricted Shares") to executive officers ("Officers") and 23,642 Restricted
Shares (net of subsequent forfeitures) to certain employees ("Employees") of the
Company. In general, the Restricted Shares carry all the rights of Common Shares
including voting and dividend rights, but may not be transferred, assigned or
pledged until the Recipients have a vested non-forfeitable right to such shares.
Vesting with respect to the Restricted Shares issued to Officers, which is
subject to the recipients' continued employment with the Company through the
applicable vesting dates, is ratably over four years commencing on the first
anniversary of the Grant Date and each of the next three anniversaries
thereafter. In addition, vesting on 50% of these Restricted Shares is also
subject to certain total shareholder returns on the Company's Common Shares.
Vesting with respect to the Restricted Shares issued to Employees, which is
subject to the Recipients' continued employment with the Company through the
applicable vesting dates, is ratably over five years commencing on the Grant
Date and each of the next four anniversaries thereafter. In addition, vesting on
25% of these Restricted Shares is also subject to certain total shareholder
returns on the Company's Common Shares.
The total value of the above Restricted Share awards on the date of grant was
$2,179 which will be recognized in compensation expense over the vesting period.
For the year ended December 31, 2004, 126,853 Restricted Shares (net of
forfeitures) were issued pursuant to the 2003 Plan. The total value of the
Restricted Share awards on the date of grant was $1,586 which will be recognized
in expense over the vesting period. No awards of share appreciation rights or
performance units/shares were granted for the years ended December 31, 2005,
2004 and 2003.
For the years ended December 31, 2005, 2004 and 2003, $1,029, $764 and $410,
respectively, were recognized in compensation expense related to Restricted
Share grants. Unearned compensation of $3,541 as of December 31, 2005 will be
recognized in expense as such shares vest.
Effective January 1, 2002, the Company adopted the fair value method of
recording stock-based compensation contained in SFAS No. 123, "Accounting for
Stock-Based Compensation". As such, stock based compensation awards are expensed
over the vesting period based on the fair value at the date the stock-based
compensation was granted.
F-27
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retrospectively Adjusted (dollars in thousands, except per share amounts)
11. Share Incentive Plan, continued
The Company has used the Binomial method for 2005 and the Black-Scholes
option-pricing model in previous years for purposes of estimating the fair value
in determining compensation expense for options granted for the years ended
December 31, 2005, 2004 and 2003. The Company has also used this model for the
pro forma information regarding net income and earnings per share as required by
SFAS No. 123 for options issued for the year ended December 31, 2001 as if the
Company had also accounted for these employee stock options under the fair value
method. The fair value for the options issued by the Company was estimated at
the date of the grant using the following weighted-average assumptions resulting
in:
Years ended December 31,
----------------------------------------------------------
2005 2004 2003
-------------- --------------- ---------------
Risk-free interest rate 4.0% 4.0% 4.4%
Dividend yield 4.2% 4.2% 5.8%
Expected life 7.5 years 7.5 years 10.0 years
Expected volatility 18.0% 18.0% 18.0%
Fair value at date of grant (per option) $ 2.57 $ 2.17 $ 0.82
Changes in the number of shares under all option arrangements are summarized as
follows:
Years ended December 31,
-----------------------------------------------------------
2005 2004 2003
----------------- --------------- ---------------
Outstanding at beginning of year 464,650 2,095,150 2,472,400
Granted 69,296 19,000 8,000
Option price per share granted $ 16.35 $ 12.55-14.13 $ 9.11-11.66
Cancelled -- -- --
Exercisable at end of year 437,242 446,850 2,082,750
Settled (1) 39,500 385,000
Exercised 56,704 1,610,000 250
Expired -- -- --
Outstanding at end of year 477,242 464,650 2,095,150
Option prices per share outstanding $ 5.75-$16.35 $ 5.75-$14.13 $ 4.89-$11.66
(1) Pursuant to the 1999 Plan these options were settled and did not result in
the issuance of any additional Common Shares.
As of December 31, 2005 the outstanding options had a weighted average exercise
price of $8.08 and a weighted average remaining contractual life of
approximately 5.1 years.
12. Employee Stock Purchase and Deferred Share Plan
In 2003, the Company adopted the Acadia Realty Trust Employee Stock Purchase
Plan (the "Purchase Plan"), which allows eligible employees of the Company to
purchase Common Shares through payroll deductions. The Purchase Plan provides
for employees to purchase Common Shares on a quarterly basis at a 15% discount
to the closing price of the Company's Common Shares on either the first day or
the last day of the quarter, whichever is lower. The amount of the payroll
deductions will not exceed a percentage of the participant's annual compensation
that the Committee establishes from time to time, and a participant may not
purchase more than 1,000 Common Shares per quarter. Compensation expense will be
recognized by the Company to the extent of the above discount to the average
closing price of the Common Shares with respect to the applicable quarter.
During 2005, 2004 and 2003, 6,412, 6,397 and 810 Common Shares, respectively,
were purchased by Employees under the Purchase Plan and the associated
compensation expense was $16, $15 and $1 respectively.
In August of 2004, the Company adopted a Deferral and Distribution Election
pursuant to the 1999 Share Incentive Plan and 2003 Share Incentive Plan, whereby
the participants elected to defer receipt of 190,487 Common Shares ("Share
Units") that would otherwise be issued upon the exercise of certain options. The
payment of the option exercise price was made by tendering Common Shares that
the participants owned for at least six months prior to the option exercise
date. The Share Units are equivalent to a Common Share on a one-for-one basis
and carry a dividend equivalent right equal to the dividend rate for the
Company's Common shares. The deferral period is determined by each of the
participants and generally terminates after the cessation of the participants
continuous service with the Company, as defined in the agreement. In December
2004, optionees exercised 346,000 options pursuant to the Deferred Share
Election and tendered 155,513 Common Shares in consideration of the option
exercise price. In 2004 the Company issued 155,513 Common Shares to optionees
and 190,487 Share Units. During 2005 there were no additional Shared Units
contributed to the plan.
F-28
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retrospectively Adjusted (dollars in thousands, except per share amounts)
13. Employee 401(k) Plan
The Company maintains a 401(k) plan for employees under which the Company
currently matches 50% of a plan participant's contribution up to 6% of the
employee's annual salary. A plan participant may contribute up to a maximum of
15% of their compensation but not in excess of $14 for the year ended December
31, 2005. The Company contributed $128, $109, and $110 for the years ended
December 31, 2005, 2004 and 2003, respectively.
14. Dividends and Distributions Payable
On November 8, 2005, the Company declared a cash dividend for the quarter ended
December 31, 2005 of $0.185 per Common Share. The dividend was paid on January
13, 2006 to shareholders of record as of December 31, 2005.
15. Federal Income Taxes
The Company has elected to qualify as a REIT in accordance with the Internal
Revenue Code (the "Code") and intends at all times to qualify as a REIT under
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. To
qualify as a REIT, the Company must meet a number of organizational and
operational requirements, including a requirement that it currently distribute
at least 90% of its annual REIT taxable income to its shareholders. As a REIT,
the Company generally will not be subject to corporate Federal income tax,
provided that distributions to its shareholders equal at least the amount of its
REIT taxable income as defined under the Code. As the Company distributed
sufficient taxable income for the years ended December 31, 2005, 2004 and 2003
no U.S. Federal income or excise taxes were incurred. If the Company fails to
qualify as a REIT in any taxable year, it will be subject to Federal income
taxes at the regular corporate rates (including any applicable alternative
minimum tax) and may not be able to qualify as a REIT for the four subsequent
taxable years. Even though the Company qualifies for taxation as a REIT, the
Company is subject to certain state and local taxes on its income and property
and Federal income and excise taxes on any undistributed taxable income. In
addition, taxable income from non-REIT activities managed through the Company's
TRS's are subject to Federal, state and local income taxes.
The primary difference between the GAAP and tax reported amounts of the
Company's assets and liabilities are a higher GAAP basis in its real estate
properties. This is primarily the result of assets acquired as a result of
property contributions in exchange for OP Units.
F-29
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retrospectively Adjusted (dollars in thousands, except per share amounts)
15. Federal Income Taxes, continued
Reconciliation between GAAP Net Income and Federal Taxable Income
The following unaudited table reconciles GAAP net income to taxable income for
the years ended December 31, 2005, 2004 and 2003:
2005 2004 2003
(Estimated) (Actual) (Actual)
--------------- ------------- ------------
GAAP net income $ 20,626 $ 19,585 $ 7,853
Less: GAAP net income of TRS 1,349 -- --
-------------------------------------------
GAAP net income from REIT operations (1) 19,277 19,585 7,853
Book/tax difference in depreciation and amortization 5,163 3,438 3,828
Book/tax difference on exercise of options to purchase Common Shares (26) (8,970) --
Book/tax difference on capital transactions (50) (1,354) --
Other book/tax differences, net (748) 1,953 (326)
------------- ------------- ------------
REIT taxable income before dividends paid deduction $ 23,616 $ 14,652 $ 11,355
============= ============= ============
(1) - All adjustments to GAAP net income from REIT operations are net of amounts
attributable to minority interest and TRS.
Characterization of Distributions:
The Company has determined that the cash distributed to the shareholders is
characterized as follows for Federal income tax purposes:
For the years ended December 31,
----------------------------------
2005 2004 2003
--------- ---------- ---------
Ordinary income 95% 59% 100%
Section 1250 gain 3% 32% --
Return of capital 2% 9% --
--------- ---------- ---------
100% 100% 100%
========= ========== =========
Taxable REIT Subsidiaries ("TRS")
Income taxes have been provided for on the asset and liability method as
required by SFAS No. 109. The Company's TRS income and provision for income
taxes for the year ended December 31, 2005 is summarized as follows:
2005
(Estimated)
------------------
TRS income before income taxes $ 3,458
Less provision for income taxes:
Federal 1,601
State and Local 508
------------------
Total provision for income taxes 2,109
------------------
GAAP net income TRS $ 1,349
==================
The Company has provided a full valuation allowance against its deferred tax
asset of $247 due to the current uncertainty of its realization and as such is
not included in the accompanying Consolidated Balance Sheets at December 31,
2005. This deferred tax asset relates primarily to the differences in the timing
of the recognition of income/(deductions) and gain/(loss) between the GAAP and
tax basis of accounting for (i) real estate joint ventures activities, (ii)
capital transactions and (iii) other deductible temporary differences.
F-30
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retrospectively Adjusted (dollars in thousands, except per share amounts)
15. Federal Income Taxes, continued
The income tax provision differs from the amount computed by applying the
statutory federal income tax rate to taxable income before income taxes as
follows:
2005
------------
Federal provision at statutory tax rate (35%) $ 1,210
State and local taxes, net of federal benefit 330
Tax effect of:
Permanent differences 476
Valuation allowance against deferred tax asset 208
Utilization of loss and deduction carry forwards (115)
Other 31
------------
Total provision for income taxes $ 2,140
============
16. Financial Instruments
Fair Value of Financial Instruments:
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments" requires
disclosure on the fair value of financial instruments. Certain of the Company's
assets and liabilities are considered financial instruments. Fair value
estimates, methods and assumptions are set forth below.
Cash and Cash Equivalents, Restricted Cash, Cash in Escrow, Rents Receivable,
Notes Receivable, Prepaid Expenses, Other Assets, Accounts Payable and Accrued
Expenses, Dividends and Distributions Payable, Due to Related Parties and Other
Liabilities. The carrying amount of these assets and liabilities approximates
fair value due to the short-term nature of such accounts.
Derivative Instruments - The fair value of these instruments is based upon the
estimated amounts the Company would receive or pay to terminate the contracts as
of December 31, 2005 and 2004 and is determined using interest rate market
pricing models.
Mortgage Notes Payable - As of December 31, 2005 and 2004, the Company has
determined the estimated fair value of its mortgage notes payable, including
those relating to discontinued operations, are $235,297 and $153,612,
respectively, by discounting future cash payments utilizing a discount rate
equivalent to the rate at which similar mortgage notes payable would be
originated under conditions then existing.
Derivative Financial Instruments:
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ,
as amended and interpreted, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. As required by SFAS 133, the
Company records all derivatives on the balance sheet at fair value. The
accounting for changes in the fair value of derivatives depends on the intended
use of the derivative and the resulting designation. Derivatives used to hedge
the exposure to changes in the fair value of an asset, liability, or firm
commitment attributable to a particular risk, such as interest rate risk, are
considered fair value hedges. Derivatives used to hedge the exposure to
variability in expected future cash flows, or other types of forecasted
transactions, are considered cash flow hedges.
For derivatives designated as fair value hedges, changes in the fair value of
the derivative and the hedged item related to the hedged risk are recognized in
earnings. For derivatives designated as cash flow hedges, the effective portion
of changes in the fair value of the derivative is initially reported in other
comprehensive income (outside of earnings) and subsequently reclassified to
earnings when the hedged transaction affects earnings, and the ineffective
portion of changes in the fair value of the derivative is recognized directly in
earnings. The Company assesses the effectiveness of each hedging relationship by
comparing the changes in fair value or cash flows of the derivative hedging
instrument with the changes in fair value or cash flows of the designated hedged
item or transaction. For derivatives not designated as hedges, changes in fair
value are recognized in earnings.
F-31
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retrospectively Adjusted (dollars in thousands, except per share amounts)
16. Financial Instruments, continued
Derivative Financial Instruments, continued
As of December 31, 2005 and 2004, no derivatives were designated as fair value
hedges or hedges of net investments in foreign operations. Additionally, the
Company does not use derivatives for trading or speculative purposes and
currently does not have any derivatives that are not designated as hedges.
The following table summarizes the notional values and fair values of the
Company's derivative financial instruments as of December 31, 2005. The notional
value does not represent exposure to credit, interest rate or market risks:
Hedge Type Notional Rate Forward Start Interest Fair Value
Value Date maturity
- -----------------------------------------------------------------------------------------------------------------
LIBOR Swap $ 4.35% n/a 1/1/11 $ 615
36,778
LIBOR Swap 20,000 4.53% n/a 10/1/06 24
LIBOR Swap 15,149 4.32% n/a 1/1/07 62
LIBOR Swap 11,719 4.11% n/a 1/1/07 72
LIBOR Swap 8,730 4.47% n/a 6/1/07 31
LIBOR Swap 4,640 4.71% 10/2/06 1/1/10 5
---------------
Interest rate swap receivable $ 809
===============
LIBOR Swap 11,410 4.90% 10/2/06 10/1/11 $ (59)
LIBOR Swap 8,434 5.14% 6/1/07 3/1/12 (121)
---------------
Interest rate swap liability $ (180)
===============
As of December 31, 2005, the derivative instruments were reported at fair value
as reflected above. The interest rate swap receivable is included in Other
Assets in the Consolidated Balance Sheets. As of December 31, 2004, the
derivative instruments were reported at fair value as a derivative instrument
liability of $2,136. As of December 31, 2005 and 2004, unrealized losses
totaling $12 and $3,219, respectively, represented the fair value of the
aforementioned derivatives, of which $12 and $3,180, respectively, were
reflected in accumulated other comprehensive loss, and $0 and $39, respectively,
as a reduction of minority interest in the Operating Partnership. For the years
ended December 31, 2004 and 2003, the Company recorded in interest expense an
unrealized loss of $37 and unrealized gain of $51, respectively, due to partial
ineffectiveness on one of the swaps which was terminated in November 2004. The
ineffectiveness resulted from differences between the derivative notional and
the principal amount of the hedged variable rate debt.
The Company's interest rate hedges are designated as cash flow hedges and hedge
the future cash outflows on mortgage debt. Interest rate swaps that convert
variable payments to fixed payments, such as those held by the Company, as well
as interest rate caps, floors, collars, and forwards are cash flow hedges. The
unrealized gains and losses in the fair value of these hedges are reported on
the balance sheet with a corresponding adjustment to either accumulated other
comprehensive income or earnings depending on the type of hedging relationship.
For cash flow hedges, offsetting gains and losses are reported in accumulated
other comprehensive income. Over time, the unrealized gains and losses held in
accumulated other comprehensive income will be reclassified to earnings. This
reclassification occurs over the same time period in which the hedged items
affect earnings.
F-32
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retrospectively Adjusted (dollars in thousands, except per share amounts)
17. Earnings Per Common Share
Basic earnings per share was determined by dividing the applicable net income to
common shareholders for the year by the weighted average number of Common Shares
outstanding during each year consistent with SFAS No. 128. Diluted earnings per
share reflects the potential dilution that could occur if securities or other
contracts to issue Common Shares were exercised or converted into Common Shares
or resulted in the issuance of Common Shares that then shared in the earnings of
the Company. The following table sets forth the computation of basic and diluted
earnings per share from continuing operations for the periods indicated:
Years ended December 31,
----------------------------------------------------
2005 2004 2003
---------------- --------------- --------------
Numerator:
Income from continuing operations - basic earnings per share $ 19,643 $ 11,458 $ 6,289
Effect of dilutive securities:
Preferred OP Unit distributions - - -
------------- ------------- ------------
Numerator for diluted earnings per share 19,643 11,458 6,289
------------- ------------- ------------
Denominator:
Weighted average shares - basic earnings per share 31,949 29,341 26,640
Effect of dilutive securities:
Employee stock options 265 571 592
------------- ------------- ------------
Dilutive potential Common Shares 265 571 592
------------- ------------- ------------
Denominator for diluted earnings per share 32,214 29,912 27,232
============= ============= ============
Basic earnings per share from continuing operations $ 0.62 $ 0.39 $ 0.24
============= ============= ============
Diluted earnings per share from continuing operations $ 0.61 $ 0.38 $ 0.23
============= ============= ============
The weighted average shares used in the computation of basic earnings per share
include unvested restricted shares (Note 11) and Share Units (Note 12) that are
entitled to receive dividend equivalent payments. The effect of the conversion
of Common OP Units is not reflected in the above table as they are exchangeable
for Common Shares on a one-for-one basis. The income allocable to such units is
allocated on this same basis and reflected as minority interest in the
accompanying consolidated financial statements. As such, the assumed conversion
of these units would have no net impact on the determination of diluted earnings
per share.
18. Summary of Quarterly Financial Information (unaudited)
The quarterly results of operations of the Company for the years ended December
31, 2005 and 2004 are as follows:
Restated
March 31, June 30, September 30, December 31, Total for
2005 2005 2005 2005 Year
-------------- --------------- --------------------------------- ----------------
Revenue $ 23,776 $ 24,298 $ 27,818 $ 24,914 $ 100,806
Income from continuing operations $ 4,013 $ 4,485 $ 6,714 $ 4,431 $ 19,643
Income (loss) from discontinued operations $ 432 $ (140) $ 511 $ 180 $ 983
Net income $ 4,445 $ 4,345 $ 7,225 $ 4,611 $ 20,626
Net income per Common Share - basic:
Income from continuing operations $ 0.13 $ 0.14 $ 0.21 $ 0.14 $ 0.62
Income (loss) from discontinued operations 0.01 0.00 0.02 0.00 0.03
------------ ------------ ------------- ---------------- ----------------
Net income $ 0.14 $ 0.14 $ 0.23 $ 0.14 $ 0.65
============ ============ ============= ================ ================
Net income per Common Share -
diluted:
Income from continuing operations $ 0.13 $ 0.14 $ 0.20 $ 0.14 $ 0.61
Income (loss) from discontinued operations 0.01 0.00 0.02 0.00 0.03
------------ ------------ ------------- ---------------- ----------------
Net income $ 0.14 $ 0.14 $ 0.22 $ 0.14 $ 0.64
============ ============ ============= ================ ================
Cash dividends declared per Common
Share $ 0.1725 $ 0.1725 $ 0.1725 $ 0.185 $ 0.7025
Weighted average Common Shares
outstanding:
Basic 31,867,185 31,898,644 32,008,982 32,017,316 31,948,610
Diluted 32,139,833 32,144,529 32,706,201 32,293,926 32,214,231
F-33
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retrospectively Adjusted (dollars in thousands, except per share amounts)
18. Summary of Quarterly Financial Information (unaudited), continued
March 31, June 30, September 30, December 31, Total for
2004 2004 2004 2004 Year
----------------- ------------------ ------------------------------------ --------------
Revenue $ 21,190 $ 21,242 $ 21,369 $ 23,281 $ 87,082
Income from continuing operations $ 2,597 $ 3,466 $ 2,568 $ 2,827 $ 11,458
Income from discontinued operations $ 253 $ 298 $ 327 $ 7,249 $ 8,127
Net income $ 2,850 $ 3,764 $ 2,895 $ 10,076 $ 19,585
Net income per Common Share - basic
Income from continuing operations $ 0.09 $ 0.12 $ 0.09 $ 0.09 $ 0.39
Income from discontinued operations 0.01 0.01 0.02 0.24 0.28
----------------- ------------------ ------------------------------------ --------------
Net income $ 0.10 $ 0.13 $ 0.11 $ 0.33 $ 0.67
================= ================== ==================================== ==============
Net income per Common Share - diluted
Income from continuing operations $ 0.09 $ 0.12 $ 0.08 $ 0.09 $ 0.38
Income from discontinued operations 0.01 0.01 0.02 0.23 0.27
----------------- ------------------ ------------------------------------ --------------
Net income $ 0.10 $ 0.13 $ 0.10 $ 0.32 $ 0.65
================= ================== ==================================== ==============
Cash dividends declared per Common
Share $ 0.16 $ 0.16 $ 0.16 $ 0.1725 $ 0.6525
Weighted average Common Shares
outstanding:
Basic 27,890,065 29,333,184 29,459,175 30,665,688 29,340,992
Diluted 28,763,751 29,793,310 29,953,528 31,645,852 29,912,405
19. Commitments and Contingencies
Under various Federal, state and local laws, ordinances and regulations relating
to the protection of the environment, a current or previous owner or operator of
real estate may be liable for the cost of removal or remediation of certain
hazardous or toxic substances disposed, stored, generated, released,
manufactured or discharged from, on, at, under, or in a property. As such, the
Company may be potentially liable for costs associated with any potential
environmental remediation at any of its formerly or currently owned properties.
The Company conducts Phase I environmental reviews with respect to properties it
acquires. These reviews include an investigation for the presence of asbestos,
underground storage tanks and polychlorinated biphenyls (PCBs). Although such
reviews are intended to evaluate the environmental condition of the subject
property as well as surrounding properties, there can be no assurance that the
review conducted by the Company will be adequate to identify environmental or
other problems that may exist. Where a Phase II assessment is so recommended, a
Phase II assessment was conducted to further determine the extent of possible
environmental contamination. In all instances where a Phase I or II assessment
has resulted in specific recommendations for remedial actions, the Company has
either taken or scheduled the recommended remedial action. To mitigate unknown
risks, the Company has obtained environmental insurance for most of its
properties, which covers only unknown environmental risks.
The Company believes that it is in compliance in all material respects with all
Federal, state and local ordinances and regulations regarding hazardous or toxic
substances. Management is not aware of any environmental liability that they
believe would have a material adverse impact on the Company's financial position
or results of operations. Management is unaware of any instances in which it
would incur significant environmental costs if any or all properties were sold,
disposed of or abandoned. However, there can be no assurance that any such
non-compliance, liability, claim or expenditure will not arise in the future.
For the year ended December 31, 2004, the Company accrued a reserve for $730
related to flood damage incurred at one of its properties. Under the terms of
the Company's insurance policy, a maximum deductible of approximately $730 would
apply in the event the flood damage was the direct result of a "named" storm.
During the first quarter of 2005, the Company reduced the reserve by $480 due to
the settlement of the insurance claim.
The Company is involved in various matters of litigation arising in the normal
course of business. While the Company is unable to predict with certainty the
amounts involved, the Company's management and counsel are of the opinion that,
when such litigation is resolved, the Company's resulting liability, if any,
will not have a significant effect on the Company's consolidated financial
position or results of operations.
F-34
ACADIA REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retrospectively Adjusted (dollars in thousands, except per share amounts)
20. Subsequent Events
On January 4, 2006, the institutional investors of Fund I merged their 78%
interest in the Brandywine Portfolio into affiliates of GDC Properties
Incorporated ("GDC") in exchange for cash. The Company merged its 22% share of
the Brandywine Portfolio into GDC in exchange for a 22% interest in GDC. Prior
to the closing of this transaction, the Company provided $17.6 million of
mortgage financing to GDC secured by certain properties within the Brandywine
Portfolio.
F-35
ACADIA REALTY TRUST
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
Retrospectively Adjusted
December 31, 2005
- ------------------------------------------------------------------------------------------------------------------------------------
Costs capitalized
Subsequent Date of
Buildings & to Buildings & Accumulated Acquisition (a)
Description Encumbrances Land Improvements Acquisition Land Improvements s Total Depreciation Construction(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Shopping Centers
Crescent Plaza $ 17,600 $ 7,425 $ 7,425 822 $ 1,147 $ 8,247 $ 9,394 4,344 1984(a)
Brockton, MA
New Loudon Center 15,000 505 4,161 10,840 505 15,001 15,506 8,024 1982(a)
Latham, NY
Ledgewood Mall 23,669 619 5,434 34,693 619 40,127 40,746 26,387 1983(a)
Ledgewood, NJ
Mark Plaza -- -- 4,268 4,765 -- 9,033 9,033 5,709 1968(c)
Edwardsville, PA
Blackman Plaza -- 120 -- 1,599 120 1,599 1,719 587 1968(c)
Wilkes-Barre, PA
Plaza 422 -- 190 3,004 720 190 3,724 3,914 2,714 1972(c)
Lebanon, PA
Route 6 Mall -- -- -- 12,695 1,664 11,031 12,695 4,262 1995(c)
Honesdale, PA
Bartow Avenue -- 1,691 5,803 44 1,691 5,847 7,538 133 2002(c)
Bronx, NY
Amboy Rd. Shopping Ctr -- -- 11,909 -- -- 11,909 11,909 145 2005(a)
Staten Island, NY
Abington Towne Center (1) 799 3,197 1,994 799 5,191 5,990 1,182 1998(a)
Abington, PA
Bloomfield Town Square (2) 3,443 13,774 4,684 3,443 18,458 21,901 3,561 1998(a)
Bloomfield Hills, MI
Walnut Hill Plaza (2) 3,122 12,488 844 3,122 13,332 16,454 2,983 1998(a)
Woonsocket, RI
Elmwood Park Plaza 34,600 3,248 12,992 14,765 3,800 27,205 31,005 5,178 1998(a)
Elmwood Park, NJ
Merrillville Plaza 12,936 4,288 17,152 1,199 4,288 18,351 22,639 3,723 1998(a)
Hobart, IN
Marketplace of Absecon (2) 2,573 10,294 2,467 2,573 12,761 15,334 2,501 1998(a)
Absecon, NJ
F-36
ACADIA REALTY TRUST
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
Retrospectively Adjusted
December 31, 2005
- ------------------------------------------------------------------------------------------------------------------------------------
Costs capitalized
Subsequent Date of
Buildings & to Buildings & Accumulated Acquisition (a)
Description Encumbrances Land Improvements Acquisition Land Improvements s Total Depreciation Construction(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Hobson West Plaza $ (3) $ 1,793 $ 7,172 $ 687 $ 1,793 $ 7,859 $ 9,652 $ 1,700 1998(a)
Naperville, IL
Smithtown Shopping Center 10,082 3,229 12,917 1,230 3,229 14,147 17,376 3,173 1998(a)
Smithtown, NY
Town Line Plaza 878 3,510 7,049 909 10,528 11,437 6,304 1998(a)
Rocky Hill, CT
Branch Shopping Center (1) 3,156 12,545 619 3,156 13,164 16,320 2,523 1998(a)
Village of the
Branch, NY
The Methuen Shopping Center (1) 956 3,826 - 956 3,826 4,782 705 1998(a)
Methuen, MA
Gateway Shopping Center (1) 1,273 5,091 11,517 1,273 16,608 17,881 1,851 1999(a)
Burlington, VT
Mad River Station - 2,350 9,404 419 2,350 9,823 12,173 1,763 1999(a)
Dayton, OH
Pacesetter Park Shopping Center 12,500 1,475 5,899 971 1,475 6,870 8,345 1,223 1999(a)
Ramapo, NY
239 Greenwich 15,894 1,817 15,846 359 1,817 16,205 18,022 2,761 1999(c)
Greenwich, CT
Residential Properties
Gate House, Holiday House, Tiger 10,588 2,312 9,247 3,092 2,312 12,339 14,651 3,053 1998(a)
Village
Columbia, MO
Village Apartments (2) 3,429 13,716 2,727 3,429 16,443 19,872 3,769 1998(a)
Winston Salem,
NC
Colony Apartments 5,294 1,118 4,470 1,522 1,118 5,992 7,110 1,487 1998(a)
Columbia, MO
Brandywine Town Center 52,655 16,398 65,639 28,001 21,992 88,046 110,038 5,145 2003(a)
Wilmington, DE
Market Square 17,467 3,840 15,361 2,102 4,259 17,044 21,303 1,236 2003(a)
Wilmington, DE
Amherst Marketplace 5,102 1,534 6,144 - 1,534 6,144 7,678 583 2002(a)
Sheffield Crossing 7,508 2,049 7,557 46 2,049 7,603 9,652 619 2002(a)
Granville Center 5,571 2,186 8,744 59 2,186 8,803 10,989 751 2002(a)
Kroger/Safeway 19,685 - 48,938 - - 48,938 48,938 16,780 2003(a)
Various
400 E. Fordham Road 18,000 11,144 18,010 2,567 12,012 19,709 31,721 567 2004(a)
Bronx, NY
Sherman Avenue 19,000 25,267 - 62 25,267 62 25,329 - 2005(a)
New York, NY
216th Street 4,900 7,313 - 20 7,313 20 7,333 - 2005(a)
New York, NY
161st Street 12,064 16,679 28,410 - 16,679 28,410 45,089 296 2005(a)
Bronx, NY
Oakbrook - - 6,906 - - 6,906 6,906 97 2005(a)
Oakbrook, IL
Undeveloped land 250 250 250
Properties under development
- - - 1,282 - 1,282 1,282 - 2005(a)
---------- ---------- ---------- --------- --------- ---------- --------- --------
$ 386,602 $ 131,941 $ 421,253 $ 156,712 $ 141,319 568,587 $ 709,906 127,819
========== ========== ========== ========= ========= =========== ======== ========
F-37
ACADIA REALTY TRUST
NOTES TO SCHEDULE III
Retrospectively Adjusted
December 31, 2005
1. These properties serve as collateral for the financing with Bank of America,
FA in the amount of $44,485 (Note 6) 2. These properties serve as collateral for
the financing with Bank of America, NA in the amount of $22,000 (Note 6). 3.
Depreciation and investments in buildings and improvements reflected in the
statements of income is calculated over the estimated useful
life of the assets as follows:
Buildings 30 to 40 years
Improvements Shorter of lease term or useful life
4. The aggregate gross cost of property included above for Federal income tax
purposes was $373,098 as of December 31, 2005. 5. (a) Reconciliation of Real
Estate Properties:
The following table reconciles the real estate properties from January 1, 2003
to December 31, 2005:
For the year ended December 31,
2005 2004 2003
--------------- --------------- ---------------
Balance at beginning of year $ 599,358 $ 541,892 $ 375,149
Other improvements 12,700 6,909 13,568
Reclassification of tenant improvement activities -- 845 --
Property Acquired 97,848 49,912 153,175
--------------- --------------- ---------------
Balance at end of year $ 709,906 $ 599,558 $ 541,892
=============== =============== ===============
(b) Reconciliation of Accumulated Depreciation:
The following table reconciles accumulated depreciation from January 1, 2003 to
December 31, 2005:
For the year ended December 31,
2005 2004 2003
----------------- ----------------- ---------------
Balance at beginning of year $ 106,924 $ 86,337 $ 64,454
Reclassification of tenant improvement activities -- 660 --
Depreciation related to real estate 20,895 19,927 21,883
----------------- ----------------- ---------------
Balance at end of year $ 127,819 $ 106,924 $ 86,337
================= ================= ===============
F-38